According to an analyst, Although the interest costs of corporate firms are going up marginally, due to a basic increase in the interest rates on borrowings, their sales turnover are growing at a much faster rate due to a robust economy resulting in a declining trend of interest cost to sales ratio in the first quarter. The aggregate sales of 429 companies increased by 16.5% to Rs 1,30,088 crore during April-June 2007 from the Rs 1,11,626 crore during April-June 2006.
The top five companies that shelled out the most on finance charges (interest expense only) were Ispat Inds (Rs 165 crore), JSW Steel (Rs 86 crore), SAIL (Rs 80 crore), Jaiprakash Associates (Rs 79 crore) and Reliance Energy (Rs 69 crore). For these companies, the interest as a percentage of net sales ranged between 0.99% and 9.11%.
One hundred and ninety companies witnessed a fall in the interest expense-sales ratio, while 233 companies have shown a higher ratio, against April-June 2006. Six companies maintained the same ratio in both the three-month periods.
A significant fall in the ratio was witnessed in the case of EPC Inds (66.67% during April-June 2006 to 6.75% during April-June 2007), Mafatlal Inds (28.82% to 4.86%) and Ispat Inds (18.04% to 9.11%).
On the other hand, a significant improvement in the ratio was observed in the case of Cimmco Birla (172.73% to 204.13%) , Hind Oil Exploration (2.86% to 16.58%) and Nelco ( 8.71% to 17.49%). Out of the 429 companies, 276 companies have witnessed an increase in interest costs, while 138 companies have shown a decline, against April-June 2006 . Fifteen companies showed no change. A significant increase in the interest cost was seen in the case of Ashok Leyland (2353.8%), Alembic (1010.3 %) and Tata Sponge Iron (716.7%).
A significant decline in interest costs was seen in the case of Mysore Cement (-94.1%), Finolex Inds (-89.1%) and Panacea Biotec (-87.5%).
Among the industries studied, 19 industries showed an increase in the ratio of interest to sales during April -June 2007. A mention may also be made of auto ancillaries (1.65% in April-June 2006 to 1.86% in April-June 2007), diversified (2.22% to 2.40%), fertilisers (2.88% to 3.22%), pharma (1.67% to 1.75%), food processing (0.92 % to 1.26%) and sugar (2.62% to 5.83%).
An opposite trend can be seen in the case of construction (5.38% to 5.14%), cement and related products (2.64% to 1.40%), hotels (4.17% to 3.29%) and steel (4.35 % to 2.79%).