Market watchers debate the need to borrow to fuel growth. In moderation, debt-driven investment is an effective means of generating growth. However, there is a thin line between managing debt and falling into a debt trap.
To check if debt does result in business growth, we analysed 10 companies with high accumulated losses which collectively add up ₹25,000 crore debt in FY13. It does not come as a surprise if one checks how much Kingfisher Airlines contributed to this load: 54 per cent. The king of good times, with its total loss of ₹13,473 crore accumulated since its inception.
On closer observation we figured that four companies from the telecom sector and two in the airline sector make way into the top 10 indicating the struggles of these industries.
Another noticeable fact with these companies is that they have aggregated debt of ₹41,861 crore. Going by the past results of companies that faced huge debt, the future of these 10 companies looks very bleak. Our assessment is based on analysing companies with highest accumulated losses in FY08 and where they stood FY13.
There is little to cheer for these companies, as the data indicates there is not much that has changed in them. Although majority of them were successful in bringing down their high debt level over the past five years through debt restructuring; they were not successful in transforming their earnings. Only three companies were able to turnaround their earnings, of which two are still unable to woo the market. Companies like ITI and Gujarat State Fertilizers and Chemicals continue to be part of the list from FY08. Surely, it is difficult to recover from the weight of debt for anyone.
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