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Cos with strong balance sheets will manage crisis
Corporates with adequate balance sheet strength are more likely to sustain the impact of the Covid-19 pandemic which has affected all the sectors, says a report. In the current exceptional circumstances, it is futile to look at profit and loss parameters, according to the SBI's research report, Ecowrap.
Mumbai: Corporates with adequate balance sheet strength are more likely to sustain the impact of the Covid-19 pandemic which has affected all the sectors, says a report. In the current exceptional circumstances, it is futile to look at profit and loss parameters, according to the SBI's research report, Ecowrap. "What will be more important to closely observe the balance sheet strength. Ideally, corporates with such strength will be able to navigate through this exceptional times," the report said.
It said no sector is untouched with the impact of Covid-19 and subsequent lockdowns even after opening up will prolong the economic pain. The report has looked into balance sheet strength of various sectors based on some key parameters such as debt-to-equity (DE), debt service coverage (DSCR), interest service coverage ratio (ISCR) and cash and bank balance to debt.
Sectors such as automobile, FMCG, consumer durable though have reported negative growth in all key parameters in the fourth quarter of FY2020, have the requisite balance sheet strength to come out from the current situation, the report said.
While the automobile sector has a DE ratio of 0.20 and DSCR and ISCR of 1.57 and 5.56 respectively, the consumer durable sector has a DE of 0.25 and DSCR and ISCR of 4.77 and 8.93 respectively. There are sectors such as sugar, steel, telecom services and constructions among others that do not have the balance sheet strength and may face difficulties in this uncertain period, it said.
