Hi ,
I tried to run a simple screen on screenr
Interest / Debt < 0.03
so basically looking at companies which get their loans for less than 3%. I thought it should be kind of a red flag because it should not be possible to get loans this cheap for anyone. But there are 719 companies including biggies like reliance and dr reddy’s. what am i missing here?
Thanks,
Tejesh
I had a quick look at Dr.Reddy’s. Most of their loans are forex-denominated (USD and EUR which have ultra-low interest rates). This makes sense as most of their revenues are in foreign currency.
Dear Tejesh
This number may not be correct always, not referring to the particular case.
We are comparing one static number (interest for the period) with moving/floating base number (debt). If the debt is taken shortly before book closing date (balance sheet date) then interest amount will be lower. Plus debt is Opening plus taken minus paid. Hence intermediate interests paid may be of different rates.
What I do is, I check the long term and short debt schedule to see who has given the loans. If the loans are given by Indian financial institutions unlikely it will go down PLR, 3% is kind of ruled out. If there is a foreign loan, they should provide rate of interest and who has provided. Sometime buyers credit arrangement which are interest free get added to debt number which shows artificial high debt number.
If @jobin has checked these are foreign loans, it may be possible. But please do see the covenants added, plus the borrowings route are not easy due to legal complications.
Another way I would prefer is prepare a debt maturity schedule with with opening, repayment, and addition for last five/ten years if we want to know a reasonable accurate rate of interest.
Second method I would prefer if its debt intensive (debt/asset).
