On expected lines, Q4FY20 has been a washout quarter. The adverse impact of Covid 19 is expected to wipe out the entire FY21E earnings growth. Companies are stretched for working capital and pay cuts have emerged as a new norm.
No wonder, the market is failing to gain momentum; or worst, every decline threatens to be a deep and painful one. Today's meltdown revoked the possibility of a similar meltdown as Sensex fell off the day's high and closed with a loss of 0.21% at 30,609.30 while Nifty closed 0.11% down at 9,029.05. Eicher Motors (up 6.34%), JSW Steel (up 6.08%) and Titan (up 5.07%) were the major gainers of the day while Bharti Airtel (down 5.72%), BajajFinserv (down 5.06%) and TCS (down 3.83%) were the major losers of the day.
One thing a budding entrepreneur can learn from the current crisis is the importance of maintaining a leverage free balance sheet. Present crisis has reemphasized how leveraged businesses are the most prone to fail when tides are not in their favor.
In this turmoil, strong cash flow and debt-free balance sheets have come as a savior for many businesses. Worth mentioning is the story of DMart.
It shows the power of a strong balance sheet and once again highlighted why cash was, is, and always will be the king!
When the majority of businesses are struggling to keep the operations going, DMart has added 18 stores during Q4- despite the Covid led disruption- and 38 stores in FY20; taking the total count to 214 stores at the end of FY20. This was DMart's highest store additions tally in the last 5 years.
Telcos opt for stake sale; leaves footprint for entire promoter’s community to follow:
Following the footsteps of RIL, Bharti Telecom, one of the promoters of Bharti Airtel, has also announced a secondary sale of USD 1.1 bn in the company. Post-sales, the promoter group’s shareholding is expected to decline from 59% to 56.2%. Importantly, BTL is likely to wipe off the entire debt of Rs7,450 crore and become debt-free once the transaction is complete.
RIL, the highest weighted stock on the bourses has also aggressively sold its stake in Reliance Jio. The company has committed to go 100% debt-free by the end of FY21. Interestingly, heavily crippled Vodafone Idea is also looking to sell its fiber assets to reduce the burden of its balance sheet.
The lead taken by these telcos should serve as a timely reminder for the promoters across all sectors and should treat debt as a bad word. One should always remember to not bite more than what one can chew to stay healthy. It applies to an individual and the businesses alike.
In the current crisis, the promoters should be encouraged to explore ways to reduce the burden of debt and lighten up their balance sheets. It is absolutely vital to keep businesses in the pink of their health.
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