Nov 16: As many as 70 companies have saved around Rs 128 crore in interest cost alone in the first half of the current financial year. For most of these companies falling interest rates appear to have saved the day. In the back drop of rising input costs and slowdown in growth, a lower interest burden has helped hold the bottomlines.

Further, these companies stand to gain much more, thanks to the recent drop in interest rates post-credit policy by 100 to 150 basis points. The effective saving on interest costs would be reflected in the second half results. Of the 150 companies which have announced the results, MTNL tops the table with an interest saving of Rs 35 crore. The second half could be much better for MTNL, if its GDR issue goes through. This will enable the company to retire some of its high cost debt. MTNL incurred total interest cost of Rs 147.6 crore for the year 1996-97. The company should be able to save at least Rs 75-80 crore in the full year. This would mean a boost of Rs 1.25 to the earnings per share.

Although in absolute terms bigger companies stand out in terms of their size, a host of medium and small companies have benefited substantially from the fall in interest rates. For example, in the case of Maharashtra Scooters the interest cost has dropped from Rs 27 lakh to Rs 2 lakh, a drop of nearly 93 per cent. In the case of Grindwell Norton the interest cost has been halved to Rs 2.2 crore as against Rs 4.4 crore in the previous year's first half. Companies with high working capital requirements have also been able to reduce their interest costs substantially.

Another major company to benefit from the drop in interest costs has been Larsen & Toubro, which saved around Rs 26 crore on this account. The company incurred a total cost of Rs 114.85 crore for full year on account of interest. For the first half the company incurred only Rs 37 crore interest cost, which is likely to come down further in the second half. For the full year the company's interest cost is likely to be in the region of Rs 70 crore.

In some cases, but for the interest cost saving the companies would have reported loss or their net profit would have slumped. For example, in the case of Balkrishna Industries, despite a drop of 4.4 per cent in sales, the company's net profit increased from Rs 4.11 crore to Rs 5.7 crore. This was mainly on account of a saving of Rs 3.12 crore in interest costs, coupled with a drop of 6.6 per cent in the total expenditure.

Similarly in the case of Indian Rayon, the net profit increased by only Rs 1.21 crore. But this increase was only after the company saved around Rs 8 crore on account of interest cost.

Despite the fall in interest rates some companies have reported substantial increase in the interest cost. For example in the case of Reliance Industries interest costs have gone up from Rs 72 crore to Rs 238 crore in the first half but this was mainly on account of increased borrowing and lower capitalisation of interest as a result of commissioning of new plants at the Hazira complex.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.