In the firms annual report for FY10, the company chairman Subodh Bhargava had said, This would increase the debt servicing obligations of the company.
The firm has a debt of Rs 6,665 crore on a consolidated basis and Rs 2,328 crore on a standalone basis, which was primarily used to fund various projects and capital expenditure, according to its annual report. During the year, the firm also issued unsecured debentures of Rs 700 crore that have been rated AAA.
According to Bhargava, unless the firm is able to explore non-debt funding avenues (equity) in the near future, its ability to raise additional debt funding may remain subject to certain restrictions. This could in turn adversely affect the firms' debt servicing ability and capital expenditure plans. The firm said it intends to invest about $500 million (Rs 2,250 crore approximately) each year for a period of next three years. During FY10, it invested about $509 million.
Bhargava also added that the increased debt has resulted in rising interest costs that are impacting the companys' profitability. At the same time, weakening of the rupee against the dollar or other major foreign currencies may have an adverse effect on our cost of borrowing and consequently may increase our financing costs, which could have a significant adverse impact on our results. During the year ended 2009-10 the firms' interest costs increased to Rs 246 crore, up 29%, from Rs 190 crore in the previous year. Its net profit during the same period was at Rs 483 crore, down 6.4%, as compared to Rs 516 crore in the year-ago period. The firm is, therefore, looking at controlling the debt burden by reinvesting the available funds, he said. During the year, the firm has reinvested its cash in the business to expand its capabilities in key markets around the world, including India. Funds available with the company for appropriation are about Rs 2,583 crore of which it intends to transfer Rs 48 crore to general reserves and Rs 355 crore to the debenture redemption reserve, leaving Rs 2,179 crore to be carried forward.