Despite a low-interest-rate regime persisting for most part of the previous fiscal, large industrial houses saw a significant growth in their interest outgo, due to a surge in borrowings. A study carried out by FE indicates that interest outgo of a sample of 25 top industrial houses increased by 49.4% during 2008-09 over 31% in the previous year.
The interest outgo for these houses grew to Rs 21,129 crore during 2008-09 from the level of Rs 10,792 crore during 2006-07 after reaching Rs 14,138 crore during 2007-08. ?This was on account of a higher borrowings by these industrial houses to fund operation and expansion plans. With the equity markets remaining weak, equity issuances through any route were virtually non-existent. And companies relied on debt? says Anant Vichare, a research analyst with a broking firm. However, as equity markets have revived and around $15 billion have been raised from India and overseas markets, the interest costs of India companies are likely to be substantially lower in the current fiscal, he adds.
Debt of top 25 industrial houses surged from 26.7% during 2007-08 to 44.4% in 2008-09.
Total debt of industrial houses went up from Rs 1.95 lakh crore in 2006-07 to Rs 2.47 lakh crore in 2007-08, and further to Rs 3.57 lakh crore in 2008-09. Significantly, the debt-equity ratio also increased from 0.47 in 2006-07 to 0.54 in 2007-08 and to 0.75 in 2008-09.
However, rising sales meant that the impact of rates could not have significant impact on margins. The aggregate sales of top 25 houses went up 14.3% to Rs 5.05 lakh crore during 2007-08 from Rs 4.41 lakh crore during 2006-07, and further increased 19.8% to Rs 6.04 lakh crore during 2008-09.
The net profit of these houses increased 25.5% to Rs 67,204 crore in 2007-08 and decreased thereafter by 13.7% to Rs 57,978 crore during 2008-09. Therefore, the interest-to-sales ratio increased from 2.44% during 2006-07 to 2.80% during 2007-08 and further increased to 3.50% during 2008-09.
In 2008-09, the top five houses in terms of interest outflow are Tata, ADAG, Hinduja, Reliance Industries led by Mukesh Ambani and OP Jindal. Tata Group, with an outflow of Rs 3,692 crore, is the leader of the pack. Among others OP Jindal with Rs 1,657 crore took the fifth position.
For some of these companies, interest accounts for around 21% of every hundred rupee of revenue generated. Of these 25 houses, seven have witnessed an increase of more than 50% in interest cost during 2008-09 from the level of 2007-08. At the same time, there were 2 houses namely Ruchi and Ispat-MPK that have actually managed to increase their interest costs by less than 10%.
In the same light, 19 houses witnessed an increase in interest expense-sales ratio, while six houses have shown a lower ratio, against 2006-07. Among the 19 industrial houses, significant increase in the ratio of interest to sales during 2008-09 from the level of 2006-07 are registered in the case of Reliance Industries, Tatas, AB Mgmt Corpn, ADAG, Hinduja, Bajaj and Torrent.
The interest to sales ratio of ADAG increased from 4.18% during 2006-07 to 9.91% during 2008-09.
An opposite trend can be seen in the case of Essar, KK Birla Group, Murugappa Group and R P Goenka. Highest increase in interest outgo was registered in the case of Essar followed by Torrent during last three years.
