Loan raised for expansion projects not used for so
If Indian companies have not used the loans they raised for expansion projects, then where has it all gone is a matter to understand. While a prolonged economic slowdown has brought new investments to a standstill, it has increased the working capital requirement of some companies quite substantially. In sectors where a large amount of capital is locked up in older projects, banks have been disbursing loans to these companies mostly to carry on day-to-day operations.
Worse, a negative working capital (current assets minus current liabilities) will mean that a company is unable to fund its short-term obligations. There are many companies, whose working capital position has deteriorated in the last five years. For instance, within the infrastructure space, GMR Infra and GVK Power Infra saw their current ratios decline from around three times to less than one time. Interest cover, a measure of a company’s ability to meet interest payments, also helps gauge a company’s financial health.
Muted growth in revenues and profits, for instance, has shrunk GVK Power Infra’s interest cover to less than one time. GMR Infra and JP Associates that have a negative working capital position have low interest cover of 0.8 to one time.
Source: The Hindu Business Line
Banks, expansion projects, GMR Infra, GVK Power Infra, infrastructure space, JP Associates, Loan, Projects
