Cos cut interest costs despite rising rates

NEW DELHI: Telecom, cement, steel, textile and sugar companies have managed to cut their interest costs in the January-March quarter of ’05-06, despite upward revision in bank interest rates, industry body Assocham said.

Companies like Gujarat Ambuja Cement, SAIL, Dharampur Sugar Mills and Dabur India have reduced their interest costs by 4%- 84%, the Assocham Eco Pulse (AEP) analysis revealed.

Contrary to industry expectations that the corporates will have to bear a high burden on interest cost, most companies not only managed to keep their capital cost in check but also succeeded in lowering its interest cost by an aggregate 2.4% while increasing net profit by 18%, it said.

The AEP study covered a sample of 71 companies across sectors . Even though all banks have hiked the prime lending rate by 50 to 100 basis points recently, the well-performing firms may manage their debt well in the first quarter of this fiscal, because of the likelihood of consistent buoyancy in cash flows, net profits, demand and profit margin.— Agencies

“Credit goes to the industry for adopting a smart strategy in managing their debt portfolio,” Assocham president Anil K Agarwal said. In the last quarter of ’05-06, the interest cost recorded by various companies across different sectors of the economy such as cement, steel, telecom, textile and sugar, marked a reduction of 17% on an aggregate.

Among the major sectors, the telecom sector took the lead by marking a decline of 35% in its interest cost followed by sugar at 31%, steel at 21%, textile at 10.5% and cement at 10%.

The reduction in interest cost has been due to effective cost cutting by reducing the number of employees, adopting technology to lessen cycle times and retiring high cost debt.