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Bharat Kumar

CHENNAI, Feb. 15

THAT IT companies don't borrow funds — either because they don't need them or because bankers will not lend them — has for long been the popular perception. That might just stand corrected, if one observes the interest expenditure totted up by some of these companies during the past couple of months.

While a top performer, Infosys, continues to be a zero-debt company, others have seen an increasing burden on the interest expense. Examples are Pentamedia Graphics, Mascot Systems, NIIT Ltd, Mascon Global, Ramco Systems, Wipro Ltd and Maars Software.

One interpretation of this phenomenon is that companies are now looking for increased working capital in the wake of a recession and cutback in orders and revenues. Another, surprising as it may sound, is that banks, after seeing the success stories scripted by players in the software industry in the last few years, are now more open to lending to this sector than they were ever before. Banking industry observers point out that it is not uncommon for banks to catch on when the wave has just begun to recede. Besides, with their obsession for collateral cover, it is just possible that the real estate that companies are investing in has come in handy.

Top software companies in general have been acquiring real estate space in India. Further, the offshore component of software industry revenues has also shown an increase, in general. Seen together, this means that with increasing pressure on revenues and margins, companies are forced to spend on domestic infrastructure. Whatever the reason, from dipping into internal accruals for spending, to loans, which result in an increased interest expense, the shift is distinct.

However, not all companies have shown an increase in interest expenses. For instance, Satyam's interest expense has decreased to Rs 9.31 crore for the nine months ended December 2001, as compared to Rs 28.15 crore for the same period in the previous year. Mascot Systems has also shown a decline in interest expense to Rs 15 lakh from Rs 1.39 crore for the same period.

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