India Inc interest burden down 20% in Q3

Updated: Jan 28 2005, 05:30am hrs
Interest expense, a major component of non-operating expenses, kept declining in the third quarter. A study of 312 major companies reveals that the interest expense of these companies during October-December 2004 is Rs 1,219 crore, at 20.14% lower than the year-ago figure of Rs 1,526 crore. Net sales of these companies increased by 24.2% to Rs 74,440 crore during October-December 2004.

So, the interest-sales ratio of these companies decreased from 2.55% during October-December 2003 to 1.64% during October-December 2004.

Free cash flow has improved significantly for companies and this has been used to reduce debt. And sales revenues have increased sharply, thus with reducing debt, interest cost to sales has fallen, said Andrew Holland, executive vice-president, DSP Merrill Lynch.

He added, Forex loans are now mark-to-market and with the rupee appreciating recently, gains are shown as other income. And corporate gearing has halved over the last five years from 50% plus to around 25%. The top 10 companies that shelled out the most in finance charges (interest expense only) during October-December 2004 were Reliance Industries (Rs 205 crore), Ispat Industries (Rs 150.7 crore), Tata Iron & Steel (Rs 80.9 crore), India Cements (Rs 45.5 crore), Tata Power (Rs 42.9 crore), Reliance Energy (Rs 35.6 crore), IPCL (Rs 34 crore), ACC (Rs 27.3 crore), Gujarat Ambuja Cements (Rs 20.3 crore) and Gujarat Industries Power (Rs 18.7 crore). For these companies, interest as a percentage of net sales ranged between 1.2% and 17.3%.

Although, most of the above companies figured among the top 10. Also, in the previous October-December period, there was a substantial difference in their position, especially where interest as a percentage of sales was considered.

The impact of the steady decline in the interest rates have been significantly divergent for large companies. Large companies have benefited from the decline in interest rates.