THE BRIEF

Why India Inc. Is Better Placed On Debt Corporate India's interest coverage ratio continues to stay elevated on the back of better profit margins and lower leverage.

- V. KESHAVDEV

Call it the deleveraging effect or better cost management, India Inc. seems to be in a better position in terms of interest coverage ratio (ICR). But as expected, the ICR, a key metric that indicates a company’s ability to service its debt by dividing profit before interest and tax (PBIT) by the interest expense, shows varying degrees of resilience across sectors.

In Q4 FY24, the ICR for the nonBFSI sector (2,259 companies) improved to 5.89x from 5.5x in Q4 FY23. The improvement came despite higher interest rates, indicating that many companies have managed to enhance profitability, thereby improving debt servicing capabilities. Aditi Gupta, economist at Bank of Baroda, believes stable global commodity prices and strategic management of expenditures significantly contributed to the improved coverage ratios across sectors. Expenses growth at 7.5%, coupled with lower interest costs and stable commodity prices — which had previously been elevated and contributed to lower input costs — played an important role in improving profit margins.