Economic rebound helps India Inc manage input cost better

Mumbai: Recovery in economic activity coupled with subsequent rise in demand and volumes helped India Inc manage raw material costs better in the quarter ended December 2009. A study of a sample of 2,141 companies carried out by FE indicates that the share of raw material costs as a percentage of sales decreased during the December 2009 quarter by 70 basis points to touch 48.84%, from the 49.54% levels in the same period of the previous year.

On an aggregate level, raw material costs increased by 16% to Rs 3.05 lakh crore in the December 2009 quarter from the level of Rs 2.63 lakh crore during the same period last year. Similarly, total expenditure of the sample companies increased by 11.4% to Rs 5.20 lakh crore during the period in reckoning.

However, it was the 63% surge in the operating profits, over the previous year, which touched Rs 1.04 lakh crore during the December 2009 quarter, made the profitability look better. The operating profit margin of the above number of companies increased from 12.06% to 16.71% during the above period. The average cost of raw materials accounts for slightly more than 59% of the total expenditure of a company. Among the 2,141 companies, 1,045 companies witnessed a fall in raw material to total expenditure ratio, while 1,096 companies depicted a higher ratio in the December 2009 quarter, when compared to the same period of the previous year.

At the individual corporate level, many companies increased the raw material cost significantly during the December 2009 quarter. Mention may be made of Bharat Electronics, Elder Pharma, Gillette and Chemplast Sanmar.

The study also looked at 35 industries and a significant increase in raw material costs was noticed in the case of aluminium, auto and ancillaries, cement & cement products, cigarettes, food products, gems & jewellery, paper, pharmaceuticals, plastics, refineries, sugar and the textile industries. A reverse trend is seen in the case of distilleries, diversified, electronics, fertilisers, paints, personal care, petrochemicals, solvent extractions and steel, tea and tyres.

Among the aluminium related sectors, significant increase in raw material cost was registered in the case of Hindalco Industries. The raw material cost of the company increased by 53.1% to Rs 3,462 crore during the December 2009 quarter from the level of Rs 2,262 crore during the previous year. According to industry sources, the upstream aluminium industry will continue to face pricing...