Steep decline in interest outgo of major PSUs

The interest outgo of India?s major public sector undertakings (excluding banks and NBFCs) showed a sharp decline in FY10, thanks largely to a low interest rate regime. An FE study indicates the growth of interest outgo for a sample of 50 major PSUs turned out to be a negative 33.5% during 2009-10 against an increase of 63.6% during 2008-09.

A significant fall in interest cost was seen for Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL), ITI Ltd, Rashtriya Chemicals Fertilisers and Bharat Electronics.

For a few PSUs, however, the interest outgo still accounts for about Rs 22 of every Rs 100 generated. The interest outgo for the 50 PSUs came to Rs 10,442 crore in the last financial year, a steep decline from the peak of Rs 15,706 crore in 2008-09, but higher than the figure of Rs 9,602 crore for 2007-08.

The interest-to-sales ratio of these PSUs dipped to 1.12% during 2009-10 from a high of 1.59% the year before and from 1.17% during 2007-08.

Aggregate sales of these 50 major PSUs showed a mixed trend in the last three years. Their sales fell 6% to Rs 9.27 lakh crore during 2009-10 against a 20.9% growth in sales to Rs 9.87 lakh crore during 2008-09 from the level of Rs 8.16 lakh crore during 2007-08.

Despite a decline in sales, the operating profit of major PSUs rose 14.8% to Rs 1.37 lakh crore during 2009-10 against a fall of 4% to Rs 1.19 lakh crore during the year 2008-09.

In 2009-10, the top five PSUs in terms of interest outflow were NTPC, Power Grid Corporation, IOC, BPCL and Hindustan Photo Films Mfg Co. NTPC, with an outflow of Rs 1,809 crore, led the pack.

Of these 50 PSUs, seven saw more than a 50% increase in their interest cost during 2009-10 from the level of 2008-09. The interest outgo of Petronet LNG rose 81.7% to Rs 183.93 crore. For the Kochi project, Petronet LNG has opted for a balance sheet/asset-based financing approach, at a debt equity ratio of 70:30. The company completed the financial closure of Kochi project in 2009-10, and loan agreements were executed with a consortium of Indian lenders (Rs 1400 crore), IFC, Washington ($200m) and Proparco of France ($100m). The company also took short-term bridge loans of Rs 400 crore to take advantage of lower short-term financing rates.

Fifteen PSUs saw an increase in their interest expense-sales ratio, while 70% PSUs showed a lower ratio.