27% of top 100 NSE firms can't afford salaries

Mumbai: As many as 27 out of the top 100 companies listed on the National Stock Exchange will not be able to sustain current wage bill if their revenue dips by 30 per cent or more due to a nationwide lockdown and imminent salary cuts, a Deloitte study said.

Given the slowdown in general consumption across all levels, companies must evaluate their ability to pay salaries, said Deloitte, which conducted a study of the top 100 companies listed on the NSE in terms of market capitalisation.

It said, "27 companies won't be able to sustain current wage bill from cash profits, if their revenue dips by 30 per cent or more. The impact will, in fact, be even larger since the cash stuck in inventory and receivables is likely to increase in such a scenario".

These companies, it said, will have to either dip into its cash balance or borrow in short term. Without naming the companies, the study said 11 of the 27 vulnerable companies have a debt to equity ratio of more than 1, making it difficult to borrow to pay salaries.

"All the companies covered have an ability to pay their fixed opex, interest and compensation cost from cash and cash equivalents for about 5.5 months at the median," it said, adding for 20 companies, this cover can last for less than a quarter.

A nationwide lockdown imposed from March 25 to contain the spread of Covid-19 has resulted in the shutting down of businesses and factories, suspension of flights and trains and restrictions on the movement of people and goods.

This has led to a slump in consumption, denting revenues of many companies. "The situation appears less comfortable after considering that other current liabilities also need to be serviced from the same cash and cash equivalents cover.

Thus, even if shareholders were to take the most generous view of foregoing their share of value adds for the current year, wage bill cuts are imminent for even some of the largest of the companies in India," it said.