The global economic recession and lower demand have lead to declining input cost in the fourth quarter for companies across 35 sectors. A FE study reveals that the aggregate expenditure of 1130 companies on raw materials decreased by 9% to Rs 1.93 lakh crore in January-March quarter of 2009 from Rs 2.12 lakh crore during the corresponding period last year.
Moreover, total expenditure of the sample companies also decreased by 8.4% to Rs 3.50 lakh crore during January-March 2009 from Rs 3.82 lakh crore during the same period last year. Interestingly, the net profit of the companies increased by 41.6% to Rs 39,328 crore during the same period. Analysts say that the average cost of raw materials accounts for about 55% of the total expenditure of a company and even a small increase or decrease in its share influences profit significantly.
The share of raw materials within total expenditure decreased by about 0.42 percentage points from 55.57% in Jan-Mar 2008 to 55.15% in Jan-Mar 2009. Among the 1130 companies, 690 companies have witnessed a fall in raw material to total expenditure ratio, while 440 companies have shown a higher ratio.
Noteworthy are some of the sample companies such as Lanco Infratech, Everest Industries and Hind Dorr-Oliver that significantly increased the raw material cost during January-March 2009. A sector-wise analysis studied the ratio of raw material cost to total cost for 35 industries. A significant decline was noticed in the case of aluminium, auto and ancillaries, chemicals, food & products, jems & jewellary, paints & varnishes, paper, personal care, petrochemicals, pharmaceuticals, plastics, textiles, tyres and vanaspati. A reverse trend was noted in the case of cement & products, cigarettes, electric equipment, electronics, fertilizers, pesticides, refineries, solvent extractions and steel.
Among the cement companies, significant increase in raw material cost was registered in the case of Heidelberg Cement. A whopping 112.8% increase to Rs 62.19 crore during January-March 2009 from Rs 29.22 crore during the corresponding period last year. The ratio of raw material cost to total costs incurred also increased from 19.68% to 30.05%. According to sources, the major inputs for cement, namely coal, limestone and gypsum are difficult to attain even when prices are stable. Although international coal prices have retreated from record highs, the availability of indigenous coal is an area of great concern.