The high interest rate has taken a toll on India Inc?s profit margin during July-September 2010. A study by FE indicates that growth of interest outgo for a sample of 942 companies (excluding banks and NBFCs) increased from 1.6% during July-September 2009 to 7.1% during July-September 2010.

The interest outgo for the companies grew to Rs 8,703 crore during July-September 2010 from Rs 7,996 crore during July-September 2008 after reaching a level of Rs 8,125 crore during July-September 2009.

However, rising sales means that the impact of rates could not have a significant impact on margins. The aggregate sales of 942 companies decreased 4.4% to Rs 3.23 lakh crore during July-September 2009 from Rs 3.38 lakh crore during July-Sept 2008 and increased thereafter by 19.3% to Rs 3.85 lakh crore during July-Sept 2010.

Net profit of the companies increased 9.5% to Rs 33,956 crore during July-September 2009 and rose further by 13.2% to Rs 38,424 crore during July-September 2010.

The profit margin increased from 9.17% to 10.5% during July-September 2009 and decreased thereafter to 9.96% during July-September 2010.

Therefore, the interest-to-sales ratio increased from 2.37% during July-September 2008 to 2.51% during July-September 2009 and decreased thereafter to 2.26% during July-September 2010.

Among the industries studied, automobiles & ancilleries, cement, IT, construction, engineering, hotels, electricity, refineries, solvent extraction and textiles showed a significant increase in the their interest spend during July-September 2010. On the other hand, an opposite trend was seen in the case of diversified, electric equipment, fertilisers, food & products, pharmaceuticals, shipping, sugar, tea, telecommunications and trading.

A steady increase in the interest to sales ratio during last three years was seen in the case of IT, engineering and sugar. On the other hand a steady downward trend in the ratio was seen in the case of autimobiles&ancilleries, food & products, electricity, tea, telecommunications, trading and tyres.

In July-September 2010, the top five companies in terms of interest outflow were NTPC, Reliance Industries, Power Grid Corporation, JP Associates and Essar Oil. NTPC, with an outflow of Rs 590 crore, is the leader of the pack. Among others, Essar Oil with Rs 306 crore took the fifth position.

For some of these companies, interest accounts for around 19% of every Rs 100 revenue generated.

Among 942 companies, 195 have witnessed an increase more than 50% in interest cost during July-September 2010 compared to July-September 2009. At the same time, there were 42% companies that have actually managed to pare their interest costs including Sterlite Industries, TIL, Amara Raja Batteries, Adani Enterprises,Grasim Industries and GE Shipping Co. In the same light, 357 companies witnessed an increase in interest expense-sales ratio, while 559 companies have shown a lower ratio, against July-September 2009.

Among the 357 companies, significant increase in the ratio of interest to sales during July-September 2010 from the level of July-September 2009 are registered in the case of Binani Industries, Essar Shipping, GMR Industries, Oudh Sugar, EIH and JK Cement.The interest to sales ratio of Essar Shipping increased from 25.56% during July-September 2009 to 38.42% during July-September 2010.

An opposite trend can be seen in the case of Delta Corporation, Suzlon Energy, SPIC, Orchid Chemicals and Chemplast Sanmar. The interest to sales ratio of Suzlon Energy decreased from 27.68% during July-September 2009 to 12.08% during July-September 2010. Among the major companies, a steady increase in interest outgo during the last three years was registered in the case of NTPC, Reliance, JP Associates, Larsen & Toubro, Alok Industries, SAIL and United Spirits. The interest outgo of SAIL steadily increased from Rs 47.54 crore during July-September 2008 to Rs 109.04 crore during July-September 2010.