India Inc.’s ability to repay debt picks up
NEW DELHI : Indian companies’ ability to repay debt is gradually improving despite rising interest rates, aided by cheaper inputs lifting operating performance, significant debt reduction in the recent past, and a fall in working-capital requirements. A Mint analysis of 382 companies in the BSE 500 index showed that interest coverage ratio (ICR) stood at 7.02 times in the June quarter, better than 6.73 times in the March quarter. The figure, however, is still lower than 7.22 times a year earlier.
The analysis excludes banks, insurance and financial services (BFSI) companies. ICR is derived by dividing a company’s earnings before interest, taxes, depreciation and amortization (Ebitda) by its interest cost. The primary reason for the better ICR is the continuing decline in the prices of raw material that has improved operating performance.
During the quarter, operating profits for the 382 companies rose 8.1% sequentially, compared to a 3.6% rise in their interest costs. The significant debt reduction over the past few years too has helped, analysts said. Over the last four years, India companies have focused significantly on deleveraging its balance sheet.
The focus during the pandemic was on conserving cash and reducing debt, which resulted in a delay in private sector capital expenditure (capex), said Manish Jain, fund manager at Ambit Asset Management. However, in a rising interest rate scenario, most quality companies have managed to avoid what could have been a crisis, added Jain, who believes that such conservatism shall persist in the near future. V.K.
Vijayakumar, chief investment strategist at Geojit Financial Services shared a similar opinion. “ICR depends on the leverage of companies. When companies borrow more
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