credit risk

Auto, Utilities and Industrials Lead the Volume of Distressed Companies

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The analysis of Altman Z-score for 290 companies from BSE 500 index in Heckyl Risk Analytics System (RAS) revealed that Automobiles, Utilities and Industrials sectors have led the volume of distressed companies in the financial year 2020.

The Altman Z-score is the output of a credit-strength test that gauges the company’s likelihood of bankruptcy. This score measures the performance of the company on profitability, leverage, liquidity, solvency, and activity to predict whether the organization has a high probability of becoming bankrupt.

Based on the value of Altman Z-score, the company cab be classified into three zones. A Z-score above 2.99 suggests that a company is in the safe zone. A Z-score between 1.8 and 2.99 is in the grey zone which suggests there is a good chance of the company going bankrupt. Meanwhile, a Z-score below 1.80 is in the distress zone which indicates a high probability of distress.

Here, we present some of the highlights of Altman Z-score analysis for 290 companies from BSE 500 index which have declared the annual results for the financial year 2020:

#1. Manappuram Finance, Shoppers Stop and Bombay Dyeing fall into Distressed category

#2. Tejas Networks, HEG and AllCargo Logistics slip into Grey zone

#3. Distressed Cholamandalam Investment, Reliance Capital and Can Fin Homes register further Deterioration

Heckyl RAS does all the heavy-lifting to save the time spent by the risk teams at the banks on the collection of various datasets and complex number crunching and thereby helping them to spend quality time on the ready to use output of business rules, financial modules and risk scores.   

Heckyl RAS is the first of its kind innovative application that offers a 360-degree view on the portfolio of companies and individuals through analysis of the traditional and alternative datasets.

To know more about Heckyl RAS, email us at info@heckyl.com.

Consumer Services, Industrials and Consumer Discretionary Companies Lead Credit Rating Downgrades

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Heckyl’s analysis of the credit rating data for 4,000 companies has shown that the Companies from Consumer Services, Industrials, Consumer Discretionary, Financial Institutions and Commercial Services sectors have dominated the credit rating downgrades from Jan. 1, 2020 to Apr. 10, 2020.

Credit Ratings is one of the Datasets that has been captured in Heckyl’s Risk Analytics System (RAS) for both public and private Indian companies. Our system monitors the changes in a company’s credit ratings on a day-to-day basis. Moreover, our rule-based engine triggers alerts based on changes in the credit rating.

Sector-wise Company Downgrades

RAS has identified 120+ companies downgraded by the credit rating agencies from Jan. 1, 2020 to Apr. 10, 2020. Out of the total, the ratings for 27 companies have been downgraded from Investment Grade to Speculative Grade. From the list of 27 companies, the ratings for 4 corporates have been downgraded to Default from Investment Grade. Read the rest of this entry »

Share pledging in China: Industrials sector at a greater risk

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The concerns over excessive pledged shares continue to haunt the stock market in China for quite some time. On October 23, the Shanghai Composite index lost 2.26 percent as investors remained pessimistic about risks posed by shares pledged for loans.

Heckyl’s analysis of pledged shares data showed the pledged shareholding for 1,836 (52.7%) out of 3,485 Chinese companies was higher than 10% as on October 19 (Image 1). For 148 companies, the pledged shareholding was greater than 50% based on the latest data at CSDC.

China Pledged Shares 1
[Image 1: Breakup of the number of companies by pledged shares holding]

The 5 most stressed sectors (having a maximum number of companies with pledged shares greater than 10% of shareholding) were Industrials, Technology Hardware & Equipment, Materials, Pharmaceuticals, and Chemicals.

China Pledged Shares 2
[Image 2: Sector-wise breakup of the number of companies by pledged shares holding]

Here, we have highlighted 5 companies with a significant pledged shareholding:

Shanghai Raas Blood Products Co Ltd (71.3%)
Wheelock and Co Ltd (64.1%)
Giant Network Group Co Ltd (61.9%)
Zhejiang Century Huatong Group Co Ltd (61.1%)
China Grand Automotive Services Co Ltd (55.9%)

In our view, substantial pledging of shares by the promoters is a potential red-flag as it is an indication of the stress that has piled up on corporate finances. Moreover, a significant drop in the company’s share price may result in the invocation of pledged shares. This may also lead to loss of management control for the promoters.

Heckyl’s FiND Credit Risk EWS captures company-related red-flags based on a variety of business rules. Our intelligent EWS application can help lenders to get an early warning about the deterioration in corporate borrowers’ financial profile ahead of time.

To know more about FiND Credit Risk EWS, email us at info@heckyl.com

FiND study proves news sentiment as a lead indicator for deterioration in financials

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77% of companies with “below industry average news sentiment” witnessed a deterioration in financials

FiND Credit Risk Early Warning System (EWS) captures company related red-flags through analysis of millions of data points and news. Unstructured data sets such as “news” are an important piece of information that can be consumed in the risk assessment of corporate borrowers.

Our hypothesis is that the news sentiment acts as a lead indicator to the deterioration in the company’s financial performance. To test this hypothesis, we back-tested news data of 2,250+ companies for the year 2016 on the following business rule:

Company’s news sentiment average stays below the industry average for all 4-quarters in CY16

We identified 924 such companies. Then, we checked if there is any deterioration in the quarterly financial performance (measured by the score of financial business rules) for these companies in the next 4-quarters (CY17).

For 77% of companies (714/924), we found that A. The number of red flags on quarterly financials outpaced the number of green flags in CY17 and B. The net score of red flags was lower than minus 10 for all 4-quarters in CY17.

We have highlighted 3 such companies whose news sentiment remained below the industry average for all 4-quarters in CY16.

SPREAD

We have also listed quarterly result charts for these 3 companies which highlight a deterioration in their financial performance in the subsequent quarters.

SML Isuzu Read the rest of this entry »

Consistent delay in PF payment is a lead for deterioration in financials: FiND study

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Publically available data from Employees’ Provident Fund Organization (EPFO) is an important piece of information that can be consumed in risk assessment of corporate borrowers. In our view, deep-dive analytics on EPFO data can offer unique insights into the company’s functioning.

Through analysis of EPFO data, the banks can find out whether the companies in their loan portfolio are depositing employees’ provident fund (PF) on time or not; and whether there is any significant drop in the PF amount deposited by the company. At the same time, lenders can also identify companies which are downsizing the workforce.   

FiND Credit Risk Early Warning System (EWS) consists of 25+ business rules that analyze the EPFO data for the companies every month. One of the key business rules is a delay in PF payment for a given month. In our view, a delay in PF payment may imply liquidity crunch for the company and hence it is a red flag for the banks. 

Our hypothesis is that red flags related to PF payment can act as a leading indicator to the deterioration in the company’s financial performance. To test this hypothesis, we back-tested our engine on EPFO data for three months (Jan-17, Feb-17, and Mar-17) on the below-mentioned business rule:

Delay in monthly payment of PF by more than 10 days for more than 50 employees

From our EPFO data universe of 1,250+ companies, FiND EWS identified 35 companies who have delayed PF payment for all 3 months.

Then, we checked if there is any deterioration in the financial performance (captured by FiND Financial Risk score) for these companies post-March 2017 quarter. 

We found that: 86% of companies (30/35) witnessed a deterioration in Financial Risk score in the subsequent quarters.

We highlight 10 such companies below:
PF shortlisted cos
[Image 1: Financial Risk Score for 10 Companies with PF red flags]
Read the rest of this entry »