Increasing interest on debts reduce operating profits for Indian Conglomerates
India’s top 500 companies spent 23 % of operating profit (profit before depreciation interest and tax, or PBDIT) excluding other income to service borrowings in FY14, higher than a year earlier. They spent almost one out of every four rupees which impacted net margins.
The proportion was much lower at 15 % of operating profit in FY09 for a sample of 393 companies in the S&P BSE 500 index (BSE Limited constructed a new index, christened S&P BSE-500, consisting of 500 scrips w.e.f. August 9, 1999) excluding banking, finance, oil and gas firms and 12 % in FY10.
Due to this spend the net margins were lowered a measure of net profit to sales — to 6.8 % from 8.2 % in FY09. However the good news is that the operating margin expanded by 140 basis points to 19.4 %.
The nation’s largest telecom operator Bharti Airtel, engineering giant Larsen & Toubro, aluminium major Hindalco, and steel pioneers Jindal Steel and Bhushan Steel were among the highly leveraged companies in the sample that reported an increase in debt levels in FY14 from a year ago.
On the other hand DLF, GMR Infrastructure, IVRCL, JP Associates, Tata Communications and Videocon Industries are some of the companies that have reduced debt through sale of assets. Industry experts believe that the rising trend in paying interest on the debts may be curtailed in FY15.
Source -The Economic Times
18.4-lakh crore in five years to FY13, increase in the gross domestic product, India’s top 500 companies spent 23% to service borrowings in FY14, process of deleveraging by selling assets, repo rate moved from 5% in 2009 to 8% in 2014, revival in economic growth, rising trend in interest rates in the economy
