India Inc appears to be getting better at managing inventories. During the last three years, a majority of the companies have seen a decline in their inventories. This is visible from the falling share of inventories when compared with sales, thus effectively lowering the costs of carrying them.

According to a study conducted by FE on 2,236 major companies from 2006 to 2009 shows that the inventories-to-sales ratio declined 13.97% in 2008-09, reflecting better management of inventories. In 2007-08 and 2006-07, the ratios stood at 15.54% and 14.09%, respectively.

The total inventories of the companies rose by 30% to Rs 3.37 lakh crore during 2007-08 from Rs 2.59 lakh crore during 2006-07 and further increased by 6.8% to Rs 3.60 lakh crore during 2008-09.

Sales of these companies increased by 18.8% during 2008-09 as against 17.9% during 2007-08.

Of the 2,236 companies covered in this study, 1,184 reported a decline in the inventories-to-sales ratio, while 1,049 experienced a rise during 2008-09 from the level of 2006-07. Three showed equal.

Many of the firms, particularly those in the fertiliser industry and refineries, showed a significant decrease in the ratio during 2008-09 from the level of 2006-07.

This indicates that they have managed their inventory levels in a proper manner.

Reliance Industries showed a steady decline in its ratio from 10.87% in 2006-07 to 10.45% during 2008-09. While its actual inventory level increased by 22.2% to Rs 14,837 crore during 2008-09 from the level of Rs 12,137 crore during 2006-07,its sales too increased by 27.1% to Rs 1.42 lakh crore during 2008-09.

This trend indicates that inventory management in Reliance Industries was done properly during the previous three years.

In the fertiliser sector, Coromandel Fertilisers showed a significant decrease in its ratio from 19.32% in 2006-07 to 14.31% in 2008-09. While its actual inventory level increased by 232.8% to Rs 1,348 crore during 2008-09 from Rs 405 crore during 2006-07, its sales figures increased by 349.6% during the same period, indicating that inventory was managed well during the period.

Ten among the companies studied had inventory-to-sales ratios above 20% during 2008-09. The industries worth mentioning are aluminium, cigarettes, diversified, food and products, pharmaceuticals, steel, sugar and textiles. In 2006-07, there were seven industries with inventories-to-sales ratios of 20% or more. Those with very low inventory-to-sales ratios in 2008-09 were automobiles & ancillaries, fertilisers, refineries and tyres.