Survival of the Fittest

Companies with low financial liabilities and high liquidity on their books have better chance to tide over the coronavirus-triggered deep slowdown

- NEVIN JOHN

It was 1991. The P.V. Narasimha Rao government had just announced the economic liberalisation policy, and top industrialists were scouting for investment opportunities. Rahul Bajaj, Chairman of Bajaj Auto, would often get calls to diversify into businesses the government had decontrolled. But Bajaj was not ready to leverage the auto business to build a power or a cement plant. He wanted to build Bajaj Auto into a leading global automaker, instead of investing in other sectors.

Bajaj was not alone. He was among a number of industrialists who resisted foraying into new businesses, despite prospects of attractive returns.

It is these businesses that appear to be better placed as coronavirus-triggered lockdown clogs cash flows. In general, they have lower debt — some even zero financial liabilities — and surplus cash on books to service loans, if any. Of the 371 non-BFSI (banking, financial services and insurance) companies in the BSE 500 index, there are 32 zero-debt companies and 108 companies with cash and bank balance higher than the gross debt (longand short-term borrowings), according to the latest half-yearly consolidated data available with Ace Equity.