76% increase in sales of resolved firms in 3 yrs since resolution: Study
An IIM Ahmedabad study shows those firms which have undergone resolution under Insolvency and Bankruptcy Code (IBC) have significantly improved their performance across all important financial metrics after the corporate insolvency resolution process (CIRP).
The study shows that several financial metrics of the resolved firms indicate a recovery to levels that is comparable to other healthy firms during the same period. Overall, post-CIRP activity and performance suggests an increase in the value addition by the resolved firms to the economy.
Some of the key findings of the study:
• Average sales have shown an increase of 76% in three years since resolution. While the net margins continue to remain negative, the resolved firms have operationally broken even in the post-resolution period (operating margin of 4% as of T+3), which is a significant improvement from before.
• There is around 50% increase in the average employee expenses in the three years post-resolution—indicating a higher employment intensity in the resolved firms (listed) in the post-CIRP period. The total employment across firms have also shown a substantial increase in the post-resolution period.
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• The trends indicate a significant increase of around 50% in the average total assets of resolved firms post resolution. This is coupled with 130% increase in the CAPEX, which indicate a build-up of tangible assets in the balance sheet of these firms in the post-resolution period. • The report further finds that there is convergence in the profitability ratios of the resolved firms with the benchmark averages in the post-CIRP period.
• The trends in the market capitalization of listed resolved firms indicate a significant revival in the average market valuations in the post-CIRP period, which is expected given the growth opportunities that will accrue to these firms. A similar trend is seen for the aggregate market valuation of all the resolved firms which has increased from around Rs 2 lakh crore to Rs 6 lakh crore in the post-resolution phase. Overall, the results suggest that the market has priced and acknowledged the potential of these firms in the post-CIRP period.
• Liquidity has improved in the post-CIRP period by about 80%. The trends indicate a significant increase in the liquidity of the resolved firms in the post-resolution period. For instance, the current assets to current liability has improved from 1.01 in the year of bankruptcy to 1.83 in the third year post-resolution.
The study was based on data of 550 firms that underwent the resolution process.
