EWS

Heckyl RAS Spots Multiple Red-Flags on Alternative Data Ahead of Deterioration in Financials

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The deterioration in financials of the company did not happen overnight. There are one or more events happening internally and/ or externally in a span of time that could hamper the company’s operations. Moreover, the impact of events is known only at the later stage after the announcement of financial results.

Tracking multiple events involving the large number of corporate borrowers in portfolio is a daunting task. In our view, the analysis of Alternative Datasets such as PF, Ownership, Directors, News Sentiment, Credit Rating, GST, Charges etc. can offer an Early Warning Signal to spot deterioration in financials ahead of time.

Heckyl’s Risk Analytics System (RAS) offers 360-Degree view on Risk Assessment of Portfolio Companies by capturing and analyzing 1. Delay in Employees’ Provident Fund (PF) contribution; 2. Adverse Media and News Sentiment; 3. Changes in the Promoter Ownership or Pledging; 4. Director Resignations; 5. Delay in GST filing; 6. Credit Rating; and 7. Creation of New Charge on Assets in addition to Financial Data.

Here, we highlight the top 10 companies which have witnessed multiple red-flags ahead of decline in Financial Score.

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RAS is the first of its kind innovative application that provides early warning signals through analysis of traditional and alternative datasets for identifying distress sectors and companies ahead of time.

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

PF data acts as a leading indicator for identifying distressed companies: Heckyl study

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Companies from consumer services, industrials and financial sectors lead drop in PF score in FY20

Publicly available data from Employees’ Provident Fund Organization (EPFO) is one of the datasets that can be very useful to gain unique insights in the assessment of credit risk. In our view, a significant delay in monthly Provident Fund (PF) payment is a potential red-flag as the delay could be due to liquidity crunch faced by the company. Moreover, a substantial drop in the number of employees or amount paid for PF is also a potential red-flag as it signals layoffs or job cuts to reduce the company’s operational cost.

Heckyl’s Risk Analytics System (RAS) has several business rules to identify such red-flags from PF data. Based on the rule output of the PF module for the company, Heckyl system computes the PF score.

Heckyl study on PF data for 1,000 companies has shown a drop in the PF score for 540+ companies during the financial year 2020. The companies from consumer services, industrials, financial institutions, commercial services and chemical sectors have led the drop in the PF score for the FY20.

Sector-wise PF Score

Moreover, 310+ companies, which have witnessed a fall in the PF score, have subsequently seen declined in the scores for other modules of RAS such as Financial, Charges, Credit Rating, Directors, Ownership, and GST. Read the rest of this entry »

Auto, Transportation, Consumer Services, Industrials and IT Sectors Hit Hard by Coronavirus

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In January this year, China witnessed an outbreak of Coronavirus which has now infected more than 8,50,000 people globally. So far, Coronavirus has claimed the lives of more than 42,000 people. The rapid spread of Coronavirus across 199 countries and territories has forced the governments announced the lockdowns. Almost all the sectors were impacted by the lockdowns.

Analysis of unstructured datasets such as News can be very useful to unravel red-flags such as plant shut down, layoffs, supply disruption, lawsuits, drop in earnings, product recalls, regulatory actions etc. ahead of time.

We conducted analysis of news data on Coronavirus to measure its impact on the sectors. Our analysis showed that Automobile, Transportation, Consumer Services, Industrials and Software & Services were the worst hit sectors due to lockdown announced by Indian government to stop the spread of Coronavirus.

Sector News Vol 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 »