Markets
India Inc's ability to repay loans improves despite elevated interest rates
Summary
- Strong growth in profitability has helped improve the repaying capability of companies. But rising input costs could add pressure on operating margins going ahead
The interest coverage ratio (ICR) of Indian non-financial companies improved in the March quarter as compared with the preceding three months and the same year-earlier level.
ICR, which measures the ability of businesses to service their interest costs, stood at 6.6 times in the March quarter, rising from 6 times in the December quarter, show data by ratings agency CareEdge.
A high interest coverage ratio means a company is more capable of meeting its interest obligations from operating earnings.
The sample size of this analysis was 926 listed companies, excluding banks and financial institutions.
The interest coverage ratio is derived by dividing a company’s earnings before interest and tax (Ebit) with its interest cost.
Strong growth in profitability has supported the ICR in spite of elevated interest rates. But with input costs (crude and commodities) inching northward, operating margins may come under pressure for companies.
This could weigh on the Street's earnings growth expectations for financial year 2024-25.
