Corporates check hiked bank rates with smart strategy

New Delhi, June 11 (UNI) Corporates in the telecom, cement, steel, textile and sugar segments are likely to maintain a healthy trend in Q1 of the current fiscal, after they managed to cut their interest costs in the last quarter of 2005-06, despite upward revision in the bank rates.

Companies like Gujarat Ambuja Cement, Steel Authority of India Ltd, Dhampur Sugar Mills Ltd, Dabur India Ltd, did exceedingly well in terms of their debt management reducing their interest costs between 4 per cent and 84 per cent, an Assocham Eco Pulse (AEP) analysis today revealed.

Contrary to the expectations that the corporates may have to bear a high burden on interest cost, most of the companies managed to not only keep their capital cost in check but also cut the interest cost by an aggregate 2.42 per cent, on the back of 18 per cent rise in net profits.

AEP studied the sample of 71 companies across the sectors including cement, FMCG, textiles, energy, telecom, IT, sugar, steel and pharmaceutical sectors.

Though the Prime Lending Rate (PLR) by almost all the banks has gone up by about 50 to 100 basis points in the recent past, the well-performing firms, are likely to manage their debt equally well in the first quarter of FY07, because cash flows, net profits, demand and profit margin are likely to remain buoyant, which would enable the corporates to successfully manage their debts and reduce their interest cost in the subsequent quarter of current fiscal, the study says.

On this the ASSOCHAM President Anil K Agarwal said, ''Credit goes to the industry for adopting a smart strategy in managing their debt portfolio.'' In the last quarter of 2005-06, 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 per cent on an aggregate.

Among the major sectors, the telecom sector took the lead by marking a decline of 35 per cent, in its interest cost followed by sugar (31 per cent), steel (21 per cent), textile (10.50 per cent) and cement (10 per cent), in Q4 FY06.

The reduction in interest cost can be attributed to effective cost cutting, by reducing the number of employees, adopting technology to lessen cycle times and most important retiring high cost debt.

The telecom sector marked a huge decline of 35 per cent in Q4 FY06. Mahanagar Telephone Nigam Ltd, one of the telecom majors, recorded a decline of 68 per cent in the Q4 FY06. Substantial decline in the interest cost was also witnessed among other major players in the telecom industry. Himanchal Futuristic Communications Ltd (66 per cent), Bharti Airtel Ltd (29 per cent).

Burdened by high debts, many operators have embarked on restructuring programmes to cut costs, reduce debt, sell assets and strengthen balance sheets.

The cement industry also posted a decline of 10 per cent in its interest cost, mainly on account of housing and construction boom.

The financial expense of the cement sector declined by about 10 per cent as against a huge rise of 95 per cent in the net profits of the segment, mainly due to increase in the lending rates by the banks, in the past few months.

In the cement industry, Gujarat Ambuja Cement Ltd marked a 51 per cent decline in Q4 FY06.

Others in the sector, which exhibited a substantial decline in interest cost are Ultra Tech (15 per cent), ACC (5 per cent) and Sanghi Industries Ltd (9 per cent).

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