NEW DELHI: The average sales of resolved firms have seen an increase of 76% in three years since resolution, while the average total assets have increased about 50% since resolution, according to a study by IIM-Ahmedabad on the effectiveness of resolution under Insolvency and Bankruptcy Code (IBC).
The study further shows there is nearly 50% rise in average employee expenses in the three years post-resolution, indicating a higher employment intensity in the resolved firms (listed) in post-resolution period.
“Average sales have shown an increase of 76% in three years since resolution. While the net margins continue to remain negative, the resolved firms have operationally broken even in post-resolution period (operating margin of 4% as of T+3), a significant improvement from the pre-resolution period,” the report stated.
The study suggests a significant surge of about 50% in average total assets of resolved firms after resolution, accompanied by a 130% increase in capital expenditure (capex), indicating the accumulation of tangible assets in the balance sheets of these firms in the post-resolution period.
Furthermore, the report highlights a convergence in profitability ratios of the resolved firms with benchmark averages during the post-resolution period. Market capitalisation trends of listed resolved firms further demonstrate a significant revival in average market valuations after resolution. This growth is expected due to the enhanced growth opportunities that arise for these firms following resolution with creditors.