The monetary tightening by the Reserve Bank of India and spike in the short-term interest rate have closed many options for India's most indebted companies. A special report by Business Standard says that as credit gets scarce and expensive, many companies will be left with no option but to go on a diet to survive the current economic slowdown.
The BS report quoted Deep Narayan Mukherjee, director, ratings, at India Ratings and Research, as saying, "The choices are stark for these companies. Either improve cash flow generation from the business, raise fresh equity, if possible or sell off assets."
The first priority should be to deleverage the balance sheet and cut the mounting interest burden that is eating into operating profits and forcing many firms to report losses at net level, the report mentioned Mukherjee as saying.
None of the choices is easy, given India's falling growth indicators. In an environment of stagnant revenue and falling profitability, cash flows can only be improved by cutting cost, though this could upset growth prospects.
Read the complete BS report here