Rs 5,500 cr interest windfall for manufacturing firms

Low interest rates have resulted in a savings bonanza of Rs 5,500 crore (Rs 55 billion) for the manufacturing sector in the first nine months (April-December) of this fiscal.

In absolute terms, the decline in interest costs works out to Rs 3,900 crore (Rs 39 billion). However, in terms of interest-sales ratio, the benefit is to the tune of Rs 5,500 crore.

The benefits accrued from interest savings is significant because almost a third of the net profit growth of 908 firms seems to have come from interest savings.

Of the aggregate net profit growth of Rs 11,188 crore (Rs 111.88 billion), interest savings alone accounted for Rs 3,900 crore. Excluding the interest savings, the growth in net profit dips to 43 per cent from 66 per cent.

The interest savings of Rs 5,500 crore has been arrived at on the basis of the decline in the interest-sales ratio of 908 companies.

During the nine months ended December 2002, the interest-sales ratio declined to 2.50 per cent from 3.59 per cent in the corresponding nine months of the previous year.

Of the available sample of 1,700 companies, 908 have benefited the most through interest savings.

These 908 account for 82 per cent of the sales and 59 per cent of the interest expenditure of the 1,700 companies that have declared their nine-month results.

But the interest cost of 800-odd companies rose 19 per cent, or by Rs 1,480 crore (Rs 14.8 billion). These are the worst-affected companies and most of them are steel firms. The net profit of these companies rose by a modest 16.18 per cent.

The public sector refineries have benefited the most with aggregate interest savings of Rs 892 crore (Rs 8.92 billion). Among refineries, Indian Oil Corporation (saving of Rs 557 crore (Rs 5.57 billion)), MRPL and HPCL (Rs 100 crore (Rs 1 billion) each) were the major beneficiaries.

The steel and textile sectors, too, got a major reprieve from the low rates. Major steel companies saved Rs 303 crore (Rs 3.03 billion) on interest, while textile firms reported savings of Rs 297 crore (Rs 2.97 billion) in interest. The cement sector, too, benefited, saving Rs 192 crore (Rs 1.92 billion).