A Lean Year

This year, the cumulative profit of the Next 500 companies fell 65%, the highest decline since the launch of the Next 500 list in 2015. You might think it’s due to GST and the aftermath of demonetisation. The real culprit: over-leverage.

- Rajiv Bhuva

THIS YEAR’S FORTUNE INDIA NEXT 500 list is unusual for multiple reasons. First off, there is a 65% fall in the combined profit of the 500 companies from the year-ago period. This is the highest fall in profit since the launch of the list in 2015.

The reason for this dismal performance would seem to be the implementation of the goods and services tax in July 2017 and the aftermath of the demonetization announced in November 2016. After all, the list has been made using the firms’ financial data for the fiscal ended in 2018. A closer look will reveal the true reason: overleverage, where the debt of a company exceeds its equity. The debt of Tata Teleservices (Maharashtra), which saw its losses widen to 9,841 crore from 2,356 crore in FY17, stands at 15,314.2 crore. The debt of Aban Offshore, the next most over-leveraged company, is 13,740.1 crore. Six companies, including these two, account for 60% of the combined loss this year.