NEW DELHI, Oct 28: Many large Indian companies are expected to focus more on cost reduction and risk management in the next 12 months, with European debt crisis putting pressure on their financials, an E&Y survey has said.
Global consultancy frim Ernst & Young’s survey of senior executives from Indian organisations showed that recent policy reform announcements are likely to boost the investor sentiment.
About 83 per cent of respondents perceived euro zone crisis as a challenge to their operations, with revenue and margin pressures considered to be key fallout of the turmoil.
“Companies are expected to increase focus on operational efficiency and cost reduction measures, as well as on risk management,” the bi-annual ‘Capital Confidence Barometer’ survey said. More than 70 senior executives participated in the survey.
E&Y India Partner and National Director (Transaction Advisory Services) Amit Khandelwal said “efficiency, cost control and risk management are crucial drivers of value and attracting greater attention today”.
“At the same time, continued focus on organic growth reflects that confidence in the economy’s long-term growth story remains intact,” he added.
As per the survey, capital optimisation remains a top agenda for the companies and around 44 per cent of respondents said they are likely to channel excess cash toward organic growth opportunities.
“Although, there is a decline in confidence among Indian respondents in the state of the domestic economy, more than 50 per cent of the respondents still have a stable or improving view about the economy,” E&Y noted.
On the M&A (Mergers & Acquisitions) front, as much as 93 per cent of the respondents said they were engaging in deals worth less than USD 500 million while 43 per cent expressed preference for deals under USD 50 million.
“The overall M&A environment is cautious. Improvement in economic performance in the coming quarters and convergence of valuations between buyers and sellers can result in a pickup in deal activity,” Amit Khandelwal noted.
Going by the survey, about 20 per cent of companies have plans for divestment in the next 12 months, “which means more willing sellers at the deal table”, E&Y said.
When it comes to financing deals, the survey found that the popularity of equity as a funding option is on the rise.
“A total of 25 per cent respondents expect to use equity to finance deals, up from 18 per cent in April 2012. Improved stock market sentiment in recent months, along with slight easing of volatility concerns, has increased confidence in equity,” it said. (PTI)
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