India Inc feels interest cost pinch

Written by Pradip Kumar Dey | Mumbai, Feb 2 | Updated: Feb 3 2008, 05:27am hrs
Interest costs have started pinching India Inc even as the Reserve Bank of India continues to monitor interest rates closely. A study conduced by the Financial Express reveals that the aggregate interest cost of 784 major corporates increased by Rs 1,159 crore. The interest charge for the companies under the study grew to Rs 4,533 crore during the third quarter of FY08, against Rs 3,374 crore paid out during the same period previous year, marking a staggering 34.3% increase.

Top five companies that shelled out the most in finance charges (interest only) were Reliance Industries (Rs 253 crore), HPCL (Rs 218 crore), Jet Airways (Rs 155 crore), JSW Steel (Rs 95 crore) and Reliance Energy (Rs 85 crore).

On an overall basis, interest costs seem to be accounting for only 1.59% of the total revenue generated, but for several companies, interest costs have been eating into their margins significantly. Interest costs for the troubled Spic account for 39.12% of sales and around 29% for Morepen Labs.

Amongst sectors such as construction, food-processing, hotels and power companies are the most impacted, as interest costs form more than 4% of their sales. However companies in the cement, fertilisers, electronics and paints managed interest costs better and saw their ratio (interest cost to sales) actually dip.

Of the 784 companies, 541 companies have witnessed an increase in interest cost, while 222 companies have shown a decline, against Oct-Dec 2006 figures. Twenty one companies showed no change. Among the industries studied, 21 industries showed an increase in the ratio of interest to sales during Oct-Dec 2007.