There is an increase in interest outgo for some of the big corporate houses. It is higher in terms of percentage of sales for 08-09 then for 06-07. ADAG had to dole out 9.91% of sales as interest in 08-09 against 4.18% in 06-07, for Jindal Group it was 5.21% (4.25%),for Tata Group 3.31% (1.51%) and for Mukesh Ambani Group it was 1.23% (1.07%). The total interest outgo for 25 top industrial houses increased to Rs 21129 crs for 08-09 against Rs 10792 crs for 06-07. It is clear that there has been larger industrial activity on account of expansion etc. Since the equity market were low, the corporates were not finding it right to raise money through equity sale route. The scene has changed and those who had to borrow heavily to meet commitments are now raising money through equity related offerings which is at substantial premiums. This is a good development for on one hand it will reduce the interest burden and on the other will give basic support to markets from falling.
There is a further point that reassures us about the resilience of Indian stocks. The total debt of industrial houses went up to Rs 3.57 lac crs in 08-09 from Rs 1.95 lac crs in 06-07 but the debt equity ratio moved up to only 0.75 from 0.47. The higher sales at Rs 6.04 lac crs in 08-09 against Rs 4.41 lac crs may well further increase in 09-10 which would then be sufficient to take care of higher borrowings and higher interest. Needless to say that all this is ensuring needed depth of the Indian stock markets. The further support will come after the PSU stake dilution by govt.
Hari Om,
Krsna Khandelwal
BIRDINFO Stock Rx - A prescription for stock market
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