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The IL&FS Default - A financial analysis

In the part 2 of the article on the IL&FS default, I have tried to analyse the financials of IL&FS (Holding Company) to understand the red flags that were arguably missed by the credit rating agencies.

Revenue and profitability analysis

The below chart shows the historical revenue and margin of the Company.

The ILandFS Default-Part 2

Revenue comprised of :

    • Infrastructure services
    • Financial services
    • Other services
    • Revenue grew from ~INR 11k Crores to ~INR 18k Crores
    • However, profit margins became negative in FY18
    • The decline in profit margin was mainly because of :
      • Increased direct costs
      • Increased borrowing costs (from 40% of revenue to 45% of revenue)

Analysis of the Balance sheet debt

  • The debt-equity ratio of IL&FS increased to a very high number of ~17 times in FY18
  • Further, short term debt as a % of debt increased from ~23% in FY15 to ~28% in FY18
  • This is contradictory to the business model of IL&FS because its revenue is generated from long-term infra projects whereas short-term debt needs to be repaid in the short-term
  • As on 31st March 2018, the IL&FS group had an outstanding loan of INR90k crores.
  • This is ~80% of the total assets of the Company.
  • This excludes the non-fund based bank guarantees and letters of credit amounting to INR600 Crores that is not appearing on the balance sheet yet.

Solvency ratios: Interest and Debt Service Coverage


  • The Interest coverage ratio of IL&FS over the last 4 years was close to 1 and became less than 1 in FY18. This clearly indicates that its credit worthiness was poor for a long time.
  • The DSCR on the other hand was way below 1 for a long time. Any bank exercising its due diligence would think twice before lending to IL&FS
  • These indicate that a default was always on the horizon

Liquidity analysis

  • The current ratio, cash ratio and liquidity ratios measure a firm�s ability to meet its short-term obligations.
  • IL&FS had a current ratio of less than 1 for all of the past 4 years.
  • Further, its quick ratio and cash ratio were even lower.


Kindly note that the above article is only for academic purposes and is based on analysis conducted on the financials of the Company. The reader should not rely on the above analysis for trading purposes.


The author is a Chartered Accountant qualified in May 2015, a CFA Level 3 candidate and an MBA student at the Indian School of Business, Hyderabad.

Click here to read IL&FS Default part 1 


Published by

Anuj Rakheja
Category Shares & Stock   Report

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