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27 out of 100 Cos can’t pay salaries:Deloitte study

As many as 27 out of the top 100 companies listed on the National Stock Exchange (NSE) will not be able to pay salaries to its employees if their revenue dip by 30 percent or more due to a nationwide lockdown and imminent salary cuts, a Deloitte study said.

Given the slowdown in general consumption across all levels, companies must evaluate their ability to pay salaries, said Deloitte, which conducted a study of the top 100 companies listed on the NSE in terms of market capitalisation.

It said "27 companies won't be able to sustain current wage bill from cash profits, if their revenue dips by 30 percent or more. The impact will, in fact, be even larger since the cash stuck in inventory and receivables is likely to increase in such a scenario".These companies, it said, will have to either dip into its cash balance or borrow in short term.

Without naming the companies, the study said 11 of the 27 vulnerable companies have a debt to equity ratio of more than 1, making it difficult to borrow to pay salaries.

"All the companies covered have an ability to pay their fixed opex, interest and compensation cost from cash and cash equivalents for about 5.5 months at the median," it said, adding for 20 companies, this cover can last for less than a quarter.

The 40-day lockdown imposed to contain the spread of the coronavirus has started to show its impact on businesses in India. With factories shut, flights suspended, trains cancelled and movements of people restricted, many companies stare at massive revenue losses as the economy has come to a grinding halt. India was already reeling under an economic slowdown with effects visible on FMCG to the automobile sector even before the spread of coronavirus led to a lockdown. Sectors like retail, travel and entertainment now continue to have close to zero revenue but because of continued operating expenses, they are now staring at negative cash profits.

"The situation appears less comfortable after considering that other current liabilities also need to be serviced from the same cash and cash equivalents cover. Thus, even if shareholders were to take the most generous view of foregoing their share of value adds for the current year, wage bill cuts are imminent for even some of the largest of the companies in India," study said