Interest outgo goes up 19% this year

Written by Pradip Kumar Dey | Updated: Mar 28 2011, 08:12am hrs
The economys gradual shift to a high interest rate regime has taken its toll on the profit margins of public sector undertakings this year.

An FE study indicates that the nine-month interest outgo for a sample of 58 PSUs went up by 19.1% during April-Dec10 from a negative growth of 39.6% during April-Dec 09. The interest outgo for these PSUs, which decreased to R7,323 crore during April-Dec 09 (from R12,120 crore), thereafter increased to R8,722 crore during April-Dec.10.

The significant rise in interest outgo this year has, however, been cushioned by the aggregate higher sales recorded by the PSUs. Rising sales largely absorbed the impact of high rates on the margins. Aggregate sales increased 20.4% in April-Dec 2010, from R6.42 lakh crore a year earlier, when sales declined by 14.9% from the level of R7.55 lakh crore during April-Dec08.

As a result, the interest-to-sales ratio decreased from 1.61% to 1.14% during April-Dec 09 and further to 1.13% during April-Dec 10.

The net profit of the PSUs increased by 7.9% to R50,558 crore in the first nine months of this financial year against a 57.1% increase in the same period last year to R46,823 crore. But the net profit-to-sales ratio fell to 6.5% this year till December from 7.3% in the corresponding period last year. The ratio was 3.9% during April-Dec 08.

In April-Dec10 the top five PSUs in terms of interest outflow are IOCL, NTPC, Power Grid Corporation, BPCL and Hind Photo Films. IOCL, with an outflow of R1,802 crore, is the leader of the pack. Hind Photo Films, with R699 crore, takes the fifth position.

For some of the PSUs, like HMT, interest accounts for 19% of every Rs 100 of revenue generated. Only ten PSUs spent less than 1% of their sales as interest cost during first nine months of 2010-11. They include Indraprastha Gas, STC, IOCL and Hind Copper.

Among the 58 PSUs, eight companies have witnessed an increase of more than 50% in interest cost. At the same time, 41% companies have actually managed to trim their interest costs. Mention may be made of HPCL, NHPC, ITI, GMDC, ONGC, National Fertilisers, Madras Fertilisers and TN Newsprint.

In the same light, 24 PSUs have witnessed an increase in the interest expense-sales ratio, while 22 PSUs have shown a lower ratio. Twelve PSUs have not shown any change in their ratios. Out of 12, nine showed nil interest outgo during April-Dec10 and April-Dec09.Mention may be made of NMDC, KIOCL, Orissa Minerals and Container Corporation.

A significant increase in the ratio of interest-to-sales is registered by MTNL, HMT, Neyveli Lignite, Indraprastha Gas, NHPC and STC. The interest-to-sales ratio of HMT increased from 9.81% during April-Dec 09 to 19.21% during April-Dec 10.

An opposite trend can be seen with Power Grid Corp, Hind Organic Chem, GMDC, ITI and RCF. The interest-to-sales ratio of Power Grid Corp decreased from 23.42% during April-Dec 09 to 19.65% during April-Dec 10.

A steady increase in interest outgo during the last three years was registered by Hindustan Photo Films, HMT, Neyveli Lignite, STC, BEML, SAIL, Petronet LNG and FACT. The interest outgo of SAIL steadily increased from R212 crore during April-Dec 08 to R298 crore during April-Dec 10.

A steady downward trend in interest outgo was seen in the case of ONGC, GAIL), National Fertilisers, BPCL, HPCL, RCF and ITI. The interest outgo of HPCL steadily decreased from R1,705 crore during April-Dec 08 to R658 crore during April-Dec10.