India Inc?s profitability has been hit in the fourth quarter of FY09 by higher interest rates in spite of reduction in the banks? lending rates. A study carried out by FE indicates that the interest outgo for 696 companies increased 43.4% during the quarter. The outgo for these companies grew to Rs 5,693 crore in the fourth quarter from Rs 3,971 crore recorded in the year-ago period.

However, rising sales meant the impact of rates could not have a significant impact on margins. The aggregate sales of 696 companies increased by 2.9% to Rs 1.84 lakh crore during Jan-Mar ?09 from Rs 1.79 lakh crore recorded in the corresponding period of the previous fiscal. Net profit of the companies dropped by 18.5% to Rs 16,488 crore. Therefore, the interest-to-sales ratio increased to 3.08% from 2.22%.

Interestingly, few of the construction companies are among the top five companies in terms of interest outflow. Reliance Industries with an outflow of Rs 477 crore is on the top of the list. Among others, Jaiprakash Associates took the fifth position with Rs 168 crore.

For some of these companies, interest accounts for around 7% of every Rs 100 revenue generated.

Of these 696 companies, 418 companies have witnessed an increase in interest cost. At the same time, there were 252 companies that have actually managed to bring down their interest costs and around 26 companies managed to keep them at the same level.

In the same light, 442 companies witnessed an increase in interest expense-sales ratio, while 247 companies have shown a lower ratio. Only seven companies maintained the same ratio in the three-month period of both fiscals.

Among the industries studied, 17 of them, including manufacturers of auto & ancillaries, cement & products, construction, consumer durables, pharmaceuticals, entertainment, sugar, steel, textiles and tyres, showed an increase in the ratio of interest to sales during the fourth quarter.

The interest to sales ratio of cement group increased to 1.78% from 1.35% during the study period. An opposite trend can be seen in the case of edible oil, fertilizers, electricity and telecommunications.

Highest increase in interest outgo was registered by the paper manufacturers. A decline was seen in the case of edible oil producers.