Business News

Rising interest burden and lower growth in operating profit have taken a toll on the interest coverage ratio of India Inc at the aggregate level. For a sample of 1,950 companies excluding those in the banking and finance sector, it fell to a seven quarter low of 4.8% in the September quarter. It was 5.7% in the previous quarter and 5.4% in the year-ago quarter. The ratio is calculated as profit before interest and tax (PBIT) divided by interest outgo. It reflects the ease with which a company can cover interest expenses or service debt; a higher ratio is desirable.“Interest costs have risen sharply year-on-year due to higher (interest) rates and working capital requirements,” said Deepak Jasani, retail research head, HDFC Securities. For the sample, interest cost increased at a three quarter high of 7.2% year-on-year in the three months to September at a time when the aggregate top line growth was at a three quarter low of 4.9% amid lower government expenditure due to elections and flood situations in various parts of the country during the monsoon season. In addition, raw material costs as a percentage of revenue increased to 35.1% from 34% in the year-ago quarter. This affected EBIT, which fell by 4.9% year-on-year. It in turn weakened the interest coverage ratio for the quarter. While interest rates in the economy have remained firm, aggregate borrowings by companies increased due to higher working capital requirements. Net debt for a sample of BSE 500 companies excluding lenders increased by 13.9% year-on-year to Rs 29.8 lakh crore at the end of September 2024. 115634924 In the coming quarters, a recovery in revenue growth and benign input costs will be crucial for a pick up in the interest coverage. For the September quarter, slowdown in consumption and poor show by metals and oil and gas sectors affected the overall performance of the sample. Analysts expect a recovery in government spending in the second half of the current fiscal year, which may help companies in staging a recovery.