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G. Madhan

The effects of the steady decline in the interest rates have been sharply divergent for frontline companies (large and mid cap) in India Inc. Large companies have benefited from the decline in interest rates over the last five years.

However, the proportion of decline in interest burden has been relatively higher for mid-size companies than larger companies. In the case of companies with sales values between Rs 100 crore and Rs 1,000 crore, interest as a proportion of sales has declined from 11.8 per cent in 1998-99 to 4.9 per cent in 2002-03. In contrast, interest burden of companies with sales of more than Rs 5,000 crore have declined to 2.2 per cent from 4.5 per cent over the corresponding period.

Among large companies, majors such as SAIL, Tata Steel, Chennai Petroleum, Reliance, IPCL, Grasim Industries and Hindalco Industries have recorded noticeable decline in their interest burden. Some mid-size companies that have registered substantial decline in interest burden are Kirloskar Oil Engines, Century Enka, Titan Industries, Essar Shipping and Ipca Labs.

Overall, for manufacturing companies, interest expenses as a proportion of sales, on average has halved in the last five years. An analysis of the financial performance, of 275 companies, over a five-year period starting from 1998-99 to 2002-03 reveals this. Interest expense, which was 9.2 per cent of the sales turnover in 1998-99 have declined to 4.6 per cent in 2002-03.

Interestingly, during the same period, sales turnover has been growing. The average turnover of the sample during the period has grown (CAGR) at 16.5 per cent. This suggests that apart from the overall decline in interest rates in the economy, efficient use of working capital has contributed to the decline in interest burden.

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