If Indian companies were people, around 20 per cent of the listed space would be individuals whose salaries don't cover their loan instalments.
If Indian companies were people, around 20 per cent of the listed space would be individuals whose salaries don't cover their loan instalments.
An analysis of 1,995 listed companies shows 19.2 per cent earn less than what is needed to meet interest payments.
The interest coverage ratio is the ratio of a company's earnings before interest and taxes (EBIT) to its interest payout. The ratio is less than one for 384 firms.
These are called zombie companies if the ratio remains below one for three years in a row.
The share of Indian firms whose earnings are less than interest payments has been around 20 per cent for years now as seen in chart 1.
The smallest companies also seem most at risk because of higher interest rates. The analysis ranked companies by net sales.
A single-digit proportion of firms with net sales of Rs 1,000 crore or more had trouble meeting interest obligations from earnings.
It was as high as 23.9 per cent for the smallest companies (chart 2).
Indian companies do seem aware of the dangers of higher leverage.
Firms, irrespective of size, have broadly brought down their debt/equity ratio, a measure of indebtedness.
It has fallen from 0.96 to 0.79 for the largest firms, and similarly for others (chart 3).
The cost of capital shows a rising trend over the last year.
Banks' weighted average lending rate has risen from 8.86 per cent in November 2022 to 9.34 per cent in November 2023.
Feature Presentation: Aslam Hunani/Rediff.com
