Not much to cheer for cos with lower interest cover
Even as the benchmark indices closed the session with marginal decline of about 0.5%, indicating traders booking profits as the rate cut was already priced in, some of the stocks covered under the study shed 1% to 4% on Tuesday. IndiaBulls Real estate and Reliance Communications were the biggest losers, having retreated about 5% and 4% to R73.4 and R81.05, respectively. Even Dish TV, Essar Oil and Adani Power fell 2%.
Market observers highlight that while a turn-around in the interest rate cycle is a positive, individually companies, especially from investment driven sectors need to see revival in the business activity for the rate cuts to be clearly reflected in their financials. “Even as lower interest rates provide broader relief, an improvement in the business environment is necessary for the operational and financial gearing of companies,” said Andrew Holland, CEO, Investment Advisory, Ambit Capital.
Interest cover or the interest coverage ratio compares a company’s profit before interest and tax (PBIT or EBIT) to its interest expenses in a particular period. This helps determine the company’s ability to meet interest outgo on outstanding debt through its operating earnings. Thus, lower interest cover indicates that lesser earnings are available for the company to fulfill its interest payment and reflects
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