Telecom, textiles achieve cut in interest costs

Telecom, cement, steel, textile and sugar companies have managed to cut interest costs in the January-March quarter of 2005-06, despite upward revision in bank interest rates, the Associated Chambers of Commerce and Industry has said.

Companies like Gujarat Ambuja Cement, Steel Authority of India Ltd (Sail), Dharampur Sugar Mills Ltd and Dabur India Ltd have reduced interest costs by 4 per cent to 84 per cent, the industry body's (Assocham) eco pulse (AEP) analysis revealed.

Contrary to industry expectations that corporates would have to bear a huge burden on interest costs, most companies not only managed to keep capital cost in check but succeeded in lowering interest cost by an aggregate of 2.42 per cent, while increasing net profit by 18 per cent, it said.

The AEP study covered a sample of 71 companies across sectors, including cement, FMCG, textiles, energy, telecom, IT, sugar, steel and pharmaceuticals.

Banks have increased the prime lending rate by 50 to 100 basis points recently, firms that have been performing well could manage debt well in the first quarter of this fiscal, because cash flows, net profits, demand and profit margins are likely to be buoyant,.

"Credit goes to the industry for adopting a smart strategy in managing its debt portfolio," Assocham President Anil K Agarwal said.

In the last quarter of 2005-06, interest cost recorded by companies across different sectors of the economy marked a reduction of 17 per cent on an aggregate.

Among major sectors, telecom took the lead by marking a decline of 35 per cent in interest costs followed by sugar at 31 per cent, steel at 21 per cent, textile at 10.50 per cent and cement at 10 per cent.

Reduction in interest costs has been due to cuts in the number of employees, adopting technology to lessen cycle time and retiring high-cost debt.