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India Inc. sits on cash pile

The Economic Times:  June 10, 2005

Mumbai: India Inc seems to be swimming in hard cash. Every second manufacturing company has a bag full of liquid assets that are stashed away in bank deposits, cash in hand, debentures/bonds, government securities and mutual funds. An analysis carried out by ET of balance sheets of over 1,000 companies for ‘04-05, shows that at least 100 companies have over Rs 1,000 crore each lying ‘idle’, pending utilisation.

The study, which excludes all banks and financial companies, shows that as much as Rs 100,000 crore is lying in banks and liquid assets. This is because most capex programmes are on hold for various reasons. The companies include a wide range of manufacturing majors — Reliance Industries, Bajaj Auto, ONGC, IOC, Reliance Energy, GE Shipping, Essar Shipping and Bharti Tele.

Of the total cash hoard of Rs 1,00,000, India Inc has at least Rs 50,000 crore currently lying in bank deposits. Analysts say the term “idle money” is a misnomer, since it earns interest, especially for those who have raised foreign currency convertible bonds (FCCBs) and external commercial borrowings (ECBs) at cheaper rates. However, taking into account inflation, the real returns may turn negative.

An upturn in the commodity cycle has led to increased sales, and better cash flows. On the flip side, enhanced efficiency and improved cost-cutting has meant less cash outgo. Also, corporate debt restructurings have led to lower interest payments, and better cash flows.

While companies have gone on a fund-raising spree in ‘04-05, most of them were forced to put off their capex programme due to various reasons.

Among the various sectors in which companies have stock-piled cash, are power, petrochemicals, shipping, oil and gas, auto and telecom.

Leading the pack are ONGC, Indian Oil, Bharti Tele, Coal India, Bajaj Auto, Reliance Energy, GAIL and HPCL. ONGC has Rs 8,742 crore in cash and bank deposits and another Rs 13,138 crore in equity investments (at current market value), Indian Oil has a total of Rs 16,201 crore, with Rs 15,503 crore in equity investments and Rs 698 crore in cash/banks. Coal India has Rs 1,107 in cash/bank and another Rs 6,316 crore in other investments.

Reliance Energy, which has postponed its 3,740-mega watt power plant in Dadri (Uttar Pradesh), has Rs 6,045 crore lying in cash/bank deposits, while another Rs 187 crore is in government securities, mutual funds, equity investments and debentures/bonds.

“This is the money raised by REL during the last financial year via ECBs, FCCBs and preferential allotment to companies, including RIL,” said Anil Ambani, chairman and MD, at the AGM recently. REL had raised Rs 1,110 crore through an ECB and Rs 790 crore through an FCCB, for the Rs 11,000-crore Dadri project.

Almost every shipping company is sitting on huge cash reserves, since they were unable to go ahead with their proposed fleet expansion programme when asset prices shot up. Shipping Corporation of India, GE Shipping and Essar Shipping are sitting pretty, with over Rs 1,000 crore each in their kitty.

Sanjay Mehta, MD of Essar Shipping, said his company is sitting on $250m in cash and bank deposits. “We sold five tankers to Top Tankers of the US, when the asset prices were ruling at their peak. We are now waiting for acquisition prices to fall, and will then proceed with ship acquisition,” said Mr Mehta.

Currently, Infosys has Rs 1,482 crore lying in cash/bank while GE Shipping has around Rs 1,037 crore stashed away in bank deposits.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.