The recent hike in fuel prices by the government will impact operating costs of most Indian corporates. However, some industries like steel, cement and metals, including aluminium, will truly feel the heat.
According to an analyst with a brokerage, ?The fuel price hike would not only impact individuals but even oil-dependent industries like automobiles, commercial vehicles and logistics. A freight hikes by fleet operators can not be ruled out.?
?As per industry estimates overall cost of fuel is has a 50-60% share in the freight bill and therefore the players? may raise freight costs by 5%. These would impact sectors like steel and cement the most,? he added.
Data for FY08 reveals that power and fuel cost of 15 cement companies increased 20.2% to touch Rs 3,597 crore, accounting for 31.42% of their total expenditure. The increasing share of power and fuel in total expenditure not only hits the margins but also disturbs cost-control measures as it has a cascading effect on expenditure. For cement companies, freight cost forms a key element in a competitive pricing scenario. With the pressure on steel companies to maintain prices, margins are likely to be impacted.
Steel companies saw an increase of 13.4% in power and fuel expense during FY08 over the previous fiscal. Significant rise in these costs was noticed in the case of Monnet Ispat (95.4%) and JSW Steel (35.4%).
In the case of the eight metal companies (including aluminium) surveyed, total expenditure increased 11.5%, cost of power and fuel increased from Rs 2,951 crore to Rs 3,192 crore while the share of power and fuel in total expenditure marginally decreased from 15.73% to 15.26%.
On the other hand, a significant increase in power and fuel cost was observed in the case of National Aluminium (16.9%) and Hind Copper (11.6%). In the case of National Aluminium the share of power and fuel in total expenditure increased from 35.28% to 35.58%.
Among others, a significant increase in the ratio of power and fuel to total expenditure during 2007-08 was noticed in the case of chemical others, diversified, glass and petrochemicals. A reverse trend is seen in the case of ceramics, engineering, food-processing, pharmaceuticals, tea, paper, fertilizers, textiles and auto ancillaries.