Leading 200 Indian companies see stable cash flows in economic slowdown

by Dave

The Hindu Business Line

Has economic slowdown taken a toll on the cash churned out by India’s leading companies? Are more companies reporting negative cash flows as a result of longer working capital cycles?

An analysis of the latest annual reports for the BSE 200 companies (representing 84 per cent of overall market capitalisation) reveals no cause for worry on this front.

First, the number of companies reporting negative cash from operations hasn’t significantly increased in 2007-08. Only one in every six companies in the BSE 200 (excluding banks) reported negative operating cash flows, much the same number as in 2007 and 2006.

Two, overall cash flows for the universe, at Rs.1.6 lakh crore for 2007-08, haven’t varied much over a three-year period. Some believe cash flows to be a better metric than net profits for gauging a company’s financial performance as they capture the results of operations shorn of attempts at window dressing arising from higher receivables (sales not converted into cash) or inventory held.
Growth in cash flows

ONGC, Bharti Airtel, Reliance Industries and NTPC top the list of companies which generated the highest cash flows from operations in 2007-08.

IT majors such as Infosys and TCS and FMCG players such as ITC also figured, not surprising given the high margins and low leverage characterising these businesses. However, not all of the top cash generators have seen significant growths in their operating cash flows in 2007-08.
‘Power’ show

Companies from sectors such as commodities, power generation and power equipment are the ones to show a sharp improvement in operating cash flows this year.

Why cash flows matter

One, healthy cash flows can help a company meet its funding requirements internally in a high borrowing cost environment. Two, a company’s ability to manage its debtor and inventory levels indicates the strength of the business, in a slowdown. In this regard, the top 200 companies in India might not have too much to worry about.

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