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On the edge

The following companies may slip into losses if the interest rates in the economy rise or their profits fall


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Those who have experienced bungee jumping know what it feels like to be at the verge of falling from a height. Thankfully, their feet are tied with an elastic cord so there are often no casualties when they do fall.

The business equivalent of bungee jumping is seen in the companies listed below. They are at the verge of slipping into losses thanks to their interest outgo on debt. The interest outgo makes a substantial part (more than 80 per cent) of their earnings before interest payments and taxes. If the interest rates in the economy rise further (they have been already on an up-move; recently they were raised by another 25 basis points) or if the operating profits of these companies decline, they may quickly show a loss.

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The Z-Score helps assess the probability of bankruptcy of a company. When it is below three, it indicates a critical situation. As seen in the table, many of these companies are below that threshold.

What's more, there is no elastic cord either that can help them avoid severe injuries. What they may be feeling now and what their investors will feel eventually is anybody's guess.

Getting interest-ing

Company name Debt to equity EBIT
(Rs cr)
Interest (Rs cr) Interest as % of EBIT Z-Score
Bharat Wire Ropes 3.7 25 25 98.8 0.97
Elpro International 0.8 34 34 98.4 2.69
IL&FS Transportation Networks 7.9 3922 3760 95.9 0.52
Healthcare Global Enterprises 1 55 53 95.8 3.71
Tata Power Company 3.3 3926 3737 95.2 0.09
Snowman Logistics 0.3 13 12 94.9 6.05
Reliance Infrastructure 4.9 6979 6503 93.2 0.23
Gayatri Projects 4.3 279 258 92.8 2.64
Future Enterprises 1.5 633 578 91.3 2.47
Hindustan Construction Company -8.9 703 639 90.9 -1.13
Hotel Leela Venture 9.8 93 84 89.6 -0.74
GVK Power & Infrastructure -53.3 1836 1643 89.5 -1.23
Shristi Infrastructure 1.8 30 27 88.1 3.28
Bharti Airtel 1.6 10708 9355 87.4 0.87
Shriram EPC 0.7 119 103 86.2 1.02
Coffee Day Enterprises 2 426 364 85.4 1.77
HDIL 0.2 410 349 85.2 1.84
Vipul 1.3 37 32 84.8 3.9
Bannari Amman Spinning Mills 2.1 71 60 84.4 1.7
BGR Energy Systems 1.6 346 287 83 1.2
MEP Infrastructure Developers 50.7 574 470 81.8 0.89
Lemon Tree Hotels 1.6 96 78 81.5 5.4
Electrosteel Castings 0.8 264 214 80.9 1.04
Data as on August 13, 2018. Minimum cut-off of market cap is Rs 300 crore. 

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