India Inc's ability to repay debt picks up

Cheaper inputs, debt reduction, lower and working capital help

- Ujjval Jauhari

Indian companies' ability to repay debt is gradually improving despite rising interest rates, aided by cheaper inputs lifting operating performance, significant debt reduction in the recent past, and a fall in working-capital requirements.

A Mint analysis of 382 companies in the BSE 500 index showed that interest coverage ratio (ICR) stood at 7.02 times in the June quarter, better than 6.73 times in the March quarter. The figure, however, is still lower than 7.22 times a year earlier. The analysis excludes banks, insurance and financial services (BFSI) companies.

ICR is derived by dividing a company's earnings before interest, taxes, depreciation and amortization (Ebitda) by its interest cost.

The primary reason for the better ICR is the continuing decline in the prices of raw material that has improved operating performance. During the quarter, operating profits for the 382 companies rose 8.1% sequentially, compared to a 3.6% rise in their interest costs.