High rates hurt India Inc, outgo up 76.3 % in Q1

Written by Pradip Kumar Dey | Mumbai, Aug 2 | Updated: Aug 4 2008, 04:20am hrs
The rising interest rates have started to take a toll on India Incs profitability. A study carried out by FE indicates that interest outgo for a sample 1,001 companies increased 76.3% during the first quarter of FY09. The interest outgo for these companies grew to Rs 9,490 crore during the first quarter, from Rs 5,382 crore during the previous year.

However, rising sales meant that the impact of rates could not have a staggering effect on margins. The aggregate sales of 1,001 firms increased 40% to Rs 5,30,480 crore during April-June this year from the level of Rs 3,78,785 crore during April-June 2007. Therefore, the interest-to-sales ratio and interest-to-total expenditure ratio increased from 1.42% to 1.79% and 1.67% to 2.04%, respectively during the period.

Interestingly, public sector enterprises form the top five companies in terms of interest outflow. Indian Oil with an outflow of Rs 614 crore is the leader of the pack. High crude prices and under-recovery meant due to administered prices cause the other OMCs such as HPCL and BPCL to feature amongst the top five interest-paying companies. For some of these companies, interest accounts for around 43.58% of every hundred rupee of revenue generated.

Of these 1,001 companies, 681 companies have witnessed an increase in interest cost. At the same time, there were 305 companies that have actually managed to lower their interest costs and around 15 managed to keep them at the same level.

In the same light, 515 companies witnessed an increase in interest expense-sales ratio, while 479 companies have shown a lower ratio, against April-June07. Seven companies maintained the same ratio in both the three-month period.

Among the 33 industries studied, 23 industries showed an increase in the ratio of interest to sales during April-June 2008. Significant increase was noted in the construction sector, which saw its ratio jump from 4.17% to 6.53%. Auto ancillary manufacturers, entertainment companies and paper manufacturers too have seen interest rates eat into their margins.