Firms' ability to repay debt under pressure

High interest costs, employee expenses and capex spending raise burden

- Ujjval Jauhari

The ability of Indian companies to repay debt remains under pressure as their financing and employee expenses remain high despite relief on raw material costs, an analysis of leading listed companies has shown.

The analysis, covering 383 companies in the BSE 500 index, showed that their interest coverage ratio (ICR) stood at 6.19 times in the December quarter, marginally better than 6.12 times in the September quarter, and significantly lower than 7.84 times in the December 2021 quarter. The analysis excludes banks, insurance and financial services (BFSI) companies.

ICR improved only marginally in the December quarter, compared with multi-quarter lows in the September quarter that saw input cost pressures weigh on operating performance. ICR is derived by dividing a company’s earnings before interest, taxes, depreciation, and amortization (Ebitda) by its interest cost.

Companies’ financing costs have accelerated in the past two quarters, highlighted analysts at CareEdge. In the third quarter, interest expenses of corporates surged 23% from a year earlier, compared with a 2% decline witnessed the previous year, they said.