Rising interest cost – Is it always alarming?

Indian companies are currently operating in a low interest environment. The prime lending rate (PLR) in India was 9.55 in August 2017 as against 9.7 in September 2016. Given the high level of NPAs the banking sector is faced with, higher debt leading to higher interest cost is generally considered alarming.

However, looking at the brighter side, the best time for a company to invest in is when the PLRs are low. It can keep it borrowing cost contained and at the same time can best take advantage of financial leverage.

In this article, we have delved into companies which have seen rising interest cost in FY17, but their financials have become healthier. These companies have used additional capital for investing in their businesses and have seen their EBITDA rising.



We see that Sandur increased its borrowing to Rs 7.3cr in FY17, positively impacting its EBITDA which came in strong at Rs 88.9cr in FY17 versus less than a crore in FY16. We see that the company has benefited the most from the rising demand and the strengthened metal prices over the last one year. Another company from metal sector Hindustan Copper too realized the need to invest to benefit from industry tailwinds.

Infibeam, with its unique e-commerce driven model, needed capital to bolster its dealer and marketing network. The additional investment soared up the borrowing cost to Rs 3.3cr in FY17, but also led to more than doubling the EBITDA to Rs 19.6cr.