Companies better placed to service financial obligation

In what could be music to lenders’ ears, corporate India is showing initial signs of improvement in its debt-servicing capability. The combined interest coverage ratio (ICR) for 1,822 companies, excluding financial and oil and gas companies, improved to 3.95 times during the first quarter of 2017-18 from 3.85 times in the previous quarter. This means corporate India’s operating profit, including other income, is now enough to cover nearly four quarters of interest payments.However, on a year-on-year basis, the ICR worsened. The ratio was 4.1 during April-June 2016 period. (See the chart)A ratio of operating profit and interest obligation, the ICR indicates a company’s debt-servicing capability. A company with the ICR below 1.5 is believed to be on the verge of debt default.The improvement in the ICR in the June quarter was led by infrastructure and capital intensive sectors, such as power, telecom, metal, mining, construction, and infrastructure. This recovery has, however, come at …



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