By Ruma Dubey

The much anticipated RBI policy is scheduled for tomorrow and as usual, expectations are high that the Governor will reduce interest rates. If he does do that, well, there might be no stopping the markets and if he does not, well, again no stopping the market, from falling!

Suppose RBI does reduce rates? Is it then time to relook at companies which are sitting on high debt? These companies are sure to show some saving in the interest outgo, assuming banks pass on the rate cuts by RBI. And this in turn is sure to mean some improvement in the margins.

It does not mean that high debt companies are good but surely, they can see better margins once rates start coming down. And in this category, capital intensive companies, mainly from the infra sector stand up tall. Infra companies, which were the darling of the bourse a year or two ago, seems to have broken too many hearts and seems to have run into trouble itself. After announcing and getting into huge, sometimes, unrelated mega projects, the sheer weight of the debt seems to have kept these companies aground.

Most of the top rung infra companies are today sitting on huge debt.  The highest debt probably is of JP Associates, which currently has a debt of Rs.50,300 crore. GMR Infra is sitting on long term debts to the tune of Rs.33,000 crore. This is amongst the biggest debt in the sector. Lanco Infra comes close on its heels, with debt bill at Rs.28,036 crore. Adani Power is sitting on a debt mound of Rs.24,503 crore and not surprisingly, had ended FY12 with a net loss. IRB Infrastructure and Punj Lloyd had debt of Rs.7,369 crore and Rs.4,962 crore, respectively, as of September 2012.

Credit Suisse has put out a report stating that the aggregate debt of the top ten groups of India accounts for about 13% of total bank loans and a staggering 98% of the entire banking system net worth. In its report, it has stated that, in terms of total debt for FY12, Essar group topped the list with Rs 93,800 crore, followed by Vedanta (Rs 93,500 crore), Reliance (Rs 86,700 crore), Adani (Rs 69,500 crore), Jaypee (Rs 45,400 crore), JSW (Rs 40,200 crore), GMR (Rs 32,900 crore), Lanco (Rs 29,300 crore), Videocon (Rs 27,300 crore) and GVK (Rs 21,000 crore).

Other high debt companies are – Jet Airways (Rs 11,030 crore), HCC (Rs 7,336 crore), DLF (Rs.18,500 crore), Unitech (Rs. 5566 crore), NCC (Rs.2484 crore), Suzlon (Rs.9500 crore). In the telecom sector, Bharti Airtel leads at around Rs.67,000 crore, Rcom debt is at about Rs.36,700 crore and Idea has a debt of around Rs.10,000 crore.

Capital intensive infra companies are currently the most caught in a tight bind. The interest rates will take a while to come down. Maybe a falling rate cycle will once again prompt the much needed PE funds into infra companies, valued much lower than two years ago, maybe attractive enough to buy into? Infra companies have been on the downward cycle for too long now and before end of FY13, one hopes that the tide will turn for the better for these companies.

One does not know for sure that RBI will reduce rates tomorrow, say by 25 bps, expecting full rate transmission immediately will take some time. But banks might want to lend a helping hand to the growth story by boosting sentiments through a rate cut and in that case, these infra, realty companies could have reason for cheer. So we wait and watch and keep a tab on these scrips tomorrow to see how they react, pre and post RBI policy. More than me and you, these companies might be praying much harder and fervently for a rate cut!