Higher interest rates took a toll on PSUs’ profit margins during 2010-11. A study carried out by FE indicates that interest expenditure of 49 PSUs increased 23% during 2010-11, compared with a 33.1% reduction reported by them during 2009-10. The interest outgo for these PSUs declined by 33.1% to R11,764 crore during 2009-10 from the level of 2008-09 and increased thereafter by 23% to R14,472 crore during 2010-11.
However, the negative impact of higher interest rates on margins was offset to an extent by a jump in sales. The aggregate sales of 49 PSUs fell by 4.4% to R9.75 lakh crore during 2009-10 from the level of R10.21 lakh crore during 2008-09 and increased thereafter by 20.8% to R11.79 lakh crore during 2010-11.
The net profit of these PSUs increased by 34.5% to R77,449 crore during 2009-10 and further by 6.5% to R82,474 crore during 2010-11. The net profit-to-sales ratio increased from 5.64% during 2008-09 to 7.93% during 2009-10 and fell thereafter to 6.99% during 2010-11. And the interest-to-sales ratio declined from 1.72% to 1.21% during 2009-10 and marginally increased to 1.23% during 2010-11.
In 2010-11 the top five PSUs in terms of interest outflow were Indian Oil Corporation (IOC), NTPC, Power Grid Corporation, BPCL and Hindustan Photo Films (HPF). IOC, with an outflow of R2,980 crore, was the leader of the pack. Among others, HPF with R955 crore took the fifth position. IOC saw its overall consolidated borrowing rise by 16.9% to R57,837 crore during 2010-11 from R49,472 crore during 2009-10. For some of these PSUs, interest accounts for around 21% of every R100 of revenue generated.
Among 49 PSUs, eight companies have witnessed an increase of over 50% in interest cost during 2010-11 from the level of 2009-10. At the same time, there were 47% companies that actually managed to reduce their interest costs. Mention may be made of ONGC, RCF, ITI, GMDC, GNFC, TN Telecom, Madras Fertilisers,Hindustan Copper and Bharat Electron.
In the same light, 24 PSUs witnessed an increase in interest expense-sales ratio, while 25 PSUs registered a lower ratio compared to 2009-10. Only Bharat Electron did see any change in its ratio.
Among the 49 PSUs, a significant increase in the interest-to-sales ratio during 2010-11 was reported in the case of MTNL, HMT, Neyveli Lignite, Indraprastha Gas, ITI and BEML. The interest-to-sales ratio of Neyveli Lignite increased from 0.81% during 2009-10