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Top Ten Companies With High Debt To Equity Ratio

The debt to equity ratio is a very crucial financial leverage ratio. Many analysts look at this ratio very carefully since it gives details about a company’s capital structure in terms of the proportion of debt and equity. If a company has a very high debt to equity ratio it implies that it is very aggressive in the financing of its debt. Typically, companies with high debt to equity ratio are risky bets for equity holders since the interest payment forms a part of the net profit. Due to the higher debt to equity ratio, the interest payments are higher and hence the earnings available to the equity holders are reduced.

In the current scenario of higher interest rates, companies with high debt to equity ratio are finding themselves in hot waters. One, however, needs to see the industry in which the company operates. In a very capital-intensive industry companies tend to take more debt in order to finance their projects and hence there is a higher debt to equity ratio. Below is a list of companies with high debt to equity ratios. There could be some companies who have even higher debt to equity ratio but our data is based on those companies that have announced their audited FY12 results.


Company

Total Debt/Equity-2012

01

Jet Airways (India) Ltd

84.26

02

Hindustan Construction Co Ltd

9.64

03

Binani Industries Ltd

9.19

04

Sterling Holiday Resorts (I) Ltd

8.87

05

Aegis Logistics Ltd

7.25

06

Tube Investments of India Ltd

7.19

07

Adani Power Ltd

6.39

08

Visa Steel Ltd

5.32

09

Foods & Inns Ltd

4.96

10

Rajshree Sugars & Chemicals Ltd

4.92

Jet Airways

The aviation sector is currently trapped in a critical situation and among the companies operating in this space Jet Airways has a very high debt to equity ratio of 84 times. Its total debt is in excess of Rs 11,030 crore. The debt to equity ratio has increased mainly due to a decline in the equity which is due to a 50 per cent decrease in its reserves. Besides, its other long-term liabilities and trade payables have also increased. The company has also posted loss in the year FY12.

Hindustan Construction Company

HCC, an engineering and construction major, has been in the news quite often on account of the environmental issues it has been facing in terms of its subsidiary, Lavasa Corporation. The township started as a dream project but got stuck in a quagmire, resulting in a higher debt burden on the company. As of today, its consolidated long-term debt stands at Rs 7,336.06 crore, resulting in a debt to equity ratio of 9.64 times. With the capex cycle witnessing a slowdown and the realty segment also witnessing a significant decline, the company has witnessed a setback. The significant erosion of market capitalization vindicates the same.

Binani Industries

Binani Industries is a flagship company of the Binani Group with a presence in various diversified businesses such as cement, zinc, metals, fiber glass, minerals, etc. The company’s primary revenue comes from the cement and zinc business. Being in various businesses the consolidated debt level of the company has increased to Rs 3,653 crore, taking its debt to equity level at 9.19, which is very high.

Sterling Holiday Resorts (India)

Sterling Holiday Resorts (India) Ltd is a pioneer in vacation ownership and a leading leisure hospitality company. It was incorporated in 1986 with the vision of delivering great holiday experiences to Indian families. Currently, the company has a total of 1,385 rooms spread across a network of 18 resorts at 15 scenic holiday destinations in India. The company also has 13 additional sites where it plans to add new resorts in the coming years. As on March 31, 2012, the company has a consolidated debt of around Rs 223 crore. Its debt to equity ratio stands at 8.87 times, which is very high.

Aegis Logistics

Aegis Logistics Ltd operates at various levels in the supply chain of the Indian petroleum and chemical industry through a liquid terminal, an LPG import terminal, gas transportation services and a retail network of auto LPG stations under the brand name ‘Aegis Autogas’ in over eight states. The company’s total debt/equity ratio stands at 7.25. This is mainly due to the Rs 2,006.61 crore of short-term borrowings in FY12 from Rs 13.49 crore in FY11. The shares of Aegis are currently trading at Rs 114, lower by 1 per cent YTD.

Tube Investments of India

Tube Investment of India (TII) has business activities split into three major categories. The first is bicycles and fitness equipment with the third-largest market share in the domestic market roster of brands such as Hercules and BSA. The second is its engineering division which produces electric resistance welded tubes and cold-rolled steel strips. The third is its metals forming division, which produces car door frames and industrial as well as automotive chains. The company, as of FY12, has debt to equity ratio of 7.19, with an interest coverage ratio of 1.57 times. Being in a highly capital-intensive business, the long and short-term loans together amount to Rs 9,419.79 crore. The company recently acquired Shanthi Gears and hence its additional debt will take the debt to equity ratio higher.

Adani Power

An Adani Group company, Adani Power is one of the leading power generation companies in India with total generation capacity of 16,500 MW of which 4,620 MW is currently operational capacity, mostly based on imported coal. Recently the company signed a fuel supply agreement with Coal India but the details are not yet available. It has a total debt of over Rs 38,000 crore as on March 31, 2012 due to which its debt to equity ratio is as high as 6.39x. Its interest payment rose by three times in FY12 due to which Adani Power posted loss in that year.

Visa Steel

Visa Steel Ltd is a subsidiary of Visa Infrastructure Ltd based out of Kolkata and is mainly into the manufacturing of steel, hot metal and pig iron. The company is also into the trading of minerals and has laid down huge expansion plans in the coming years for the setting up of two steel plants in Orissa and Raigarh. As such, it has huge debt in its accounts, which, as on March 31, 2012, amounted to Rs 1,260 crore. Its debt to equity ratio is at 5.32:1, which is very high.

Foods & Inns

This company is the largest manufacturer of aseptic, canned, frozen food products and spray-dried products. Close to 65 per cent of the company’s revenue came from exports in FY12. The company is operating at a total debt to equity ratio of 4.96. The high levels of debt have put a financial burden on the company, thereby affecting its profitability to a large extent. The stock of Foods & Inns is currently trading at Rs 209.95, yielding to date returns of -8.64 per cent.

Rajshree Sugars & Chemicals

Rajshree Sugars & Chemicals Ltd (RSCL) has interests across integrated fields such as sugar, distillery, power and biotechnology. RSCL has three modern sugarcane-based integrated bio-refinery complexes. The company manufactures and markets white crystal sugar and industrial alcohol with installed capacities of 6,000 TPD and 45 KL per day respectively. As on March 31, 2012 the debt of the company stood at Rs 548 crore and its debt to equity ratio was 4.92 times.

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Yogesh Supekar / Article rating: 4.4

The stocks to watch out from the midcap and smallcap space include Ajmera Realty, Clarion chemicals, UTI AMC, Banco Products, Kisan Mouldings, PNB Housing, Hudco, Proctor Gamble Hygience and Healthcare and Jindal Worldwide for following reason

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