Interest outgo pinches companies in Q3

Written by Pradip Kumar Dey | Mumbai | Updated: Feb 3 2009, 06:12am hrs
Higher interest rates took a toll on India Incs profitability in the third quarter, though banks have subsequently reduced lending rates. A study by FE indicates that interest outgo for a sample of 1728 companies increased 79.1% during the third quarter of FY09. The interest outgo for these companies grew to Rs 18,089 crore during the third quarter, from Rs 10,101 crore during the same period a year ago.

Rising sales meant that the impact of rates could not have a significant impact on margins. Aggregate sales of 1,728 companies increased 8.8% to Rs 5.53 lakh crore during October-December 2008 from Rs 5.09 lakh crore during the same months in the previous year.

The net profit of these companies decreased by 51.6% to Rs 25,751 crore in October-December 2008. The interest-to-sales ratio and interest-to-total expenditure ratio, therefore, increased from 1.99% to 3.27% and 2.34% to 3.62%, respectively, during the period.

Three oil and gas companies are included among the top five companies in terms of interest outflow. IOC with an outflow of Rs 1,505 crore is the leader of the pack. Among others, Reliance Comm (Rs 570 crore) occupied the fifth position.

For some of these companies, interest accounts for around 40% of every hundred rupee of revenue generated. Of these 1,728 companies,1,226 companies have witnessed an increase in interest cost. At the same time, there were 426 companies that have actually managed to lower their interest costs and around 76 companies managed to keep them at the same level.

In the same light, 1,214 companies witnessed an increase in interest expense-sales ratio, while 501 companies have shown a lower ratio, against October-December 2007. Thirteen companies maintained the same ratio in both during the three-month period.

Among the industries studied, 30 industries showed an increase in the ratio of interest to sales during Q3. Automobiles, cement, construction, food-processing , pharmaceuticals, entertainment, electricity, sugar, steel, telecommunication and textiles were prominent among them.

The interest-to-sales ratio of construction companies increased from 4.13% to 7.51% during the study period. An opposite trend was seen in the case of jems & jewellery, fertilisers, solvent extraction and tea sectors.

The highest increase in interest outgo was registered by refineries (260%), followed by pharmaceuticals (151.2%). A decline was seen in the case of hotels (8%).