High rates begin to pinch India Inc

Written by Pradip Kumar Dey | Mumbai, Nov 24 | Updated: Nov 25 2007, 07:36am hrs
The prevailing high interest rate regime is now pinching the corporate houses too. According to an FE study, interest cost of 496 major corporations has gone up 7.9% in the first half of 2007-08 over the same period in the previous year to touch Rs 12,759 crore. Some companies had interest costs accounting for as much as 18% of their sales value.

The top five companies that shelled out most in terms of interest expense outflow were Indian Oil (Rs 671 crore), Reliance Industries (Rs 552 crore), NTPC (Rs 524 crore), PowerGrid (Rs 374 crore) and Tata Steel (Rs 282 crore).

Of the 496 companies, 360 have witnessed an increase in interest cost, 132 have shown a decline while 4 companies showed no change. In the set, 223 companies saw interest costs climb faster than the sales growth and therefore have a higher interest cost to sales ratio in the first half of the current fiscal, as against the same period in the previous year. However, stronger sales momentum saw 217 companies tide over rising interest costs and report a fall in the interest expense-sales ratio. Six companies maintained the same ratio in both the six months.

Overall, it was observed that sectors with strong sales traction, like steel, cement and telecommunications were able to lower the interest to sales ratio. Leading companies that managed to witness a fall include Ispat Inds, which saw interest to sale ratio drop to 6.89% in FY07 from 15.40%; Essar Steel and India Cements were among those which managed a substantial drop in this ratio.

Tata Steel, after its acquisition of Corus, has seen interest-sales ratio jump from 0.95% in the first half of the previous year to 3.14% in the current fiscal. Real estate major Unitech also saw an increase from 5.34% to 12.03% this fiscal. Close on the heels was Jai Balaji Inds, whose interest to sale ratio rose from 2.48% to 8.10%. Significant increase in interest outflow was seen with Ashok Leyland, Wipro and Tata Sponge Iron. Neyveli Lignite, ITC and Dr Reddys Lab, were the leaders in cutting their interest outflow.