Speaking at a seminar organised by Standard & Poor's on corporate and financial institutions ratings, Crisil executive Roopa Kudva said that corporates have undertaken business process re-engineering (BPR) exercises in order to remove inefficiencies and have also begun improving their working capital management. Telco and Mahindra & Mahindra have already kicked off their BPRs to improve operating efficiency. Financial restructuring exercises are also being resorted to by swapping high cost debt with low cost debt and increasing the tenure of their borrowings. Telco recently tapped the debt market with a 10-year paper.

A number of corporates have also started resorting to securitisation as a means to improve their cash flows. Telco undertook a huge securitisation programme during the last financial year and is expected to securitise some more assets during the current fiscal.

"Also, rather than grow by adding capacities, most corporates are resorting to mergers and acquisitions as this is being seen as a cheaper option," said Kudva. The pharmaceutical sector is a case in point which has seen a spate of mergers and acquisitions during the last financial year.

The cement industry, which is going through a slump, has been forced to restructure its operations on account of the fragmented industry structure and the huge overcapacities. There have also been a number of mergers and acquisitions in this sector during the last fiscal. Geographic synergies are a key driving factor to M&As in the cement industry and takeover targets are mostly weak or sick units.

The automobile industry is also going through a process of consolidation due to the cyclicality of the industry and increased competition which has begun eating into margins. Automobile manufacturers have increasingly resorted to outsourcing and have also undertaken debt restructuring exercises in order to cut down interest costs.

Crisil is of the opinion that the fragmented nature of the pharmaceutical industry will undergo a change over the next few years and that there will be a consolidation through the M&A route. Corporates like Ranbaxy, Wockhardt and Nicholas Piramal have already started expanding their operations this way.

The steel industry, which has been the worst hit is also burdened by huge over-capacities and has lost out due to globalisation which has led to declining tariffs and increased dumping by south-east Asian manufacturers. With demand remaining sluggish, a number of these companies are getting out of unrelated areas and are concentrating on their core business. Tisco has already said that it will get out of steel. Securitisation is also being resorted to in order to maintain cashflows. Essar Steel recently securitised its export receivables.

The financial sector has also been restructuring through M&As which has been happening mostly in the NBFC sector. The stronger players have been growing through portfolio buyouts and cherrypicking of assets. A restructuring of the sector is being seen as essential on account of the asset quality deterioration, funding constraints and asset-liability mismatches. Crisil has said that bank and financial institutions mergers are imminent over the next few years and the focus of the financial services sector will have to be on improvement of risk management systems.

Kudva said that the impediments to restructuring in India include the maze of regulations which make mergers and acquisitions a difficult process. "The valuation process is also made difficult as the promoters' price expectations are normally very high," said Kudva.

High interest rates compared to other developed economies are also an impediment to effective restructuring of corporates in the country.