India Inc input costs up 16.8% in July-Sep

After a temporary slump following the global economic crisis, commodity prices have risen worldwide since the start of this fiscal. This has pushed up India Inc?s input costs.

An FE study revealed that the aggregate expenditure of the 1,743 companies on raw materials increased 16.8% to Rs 3.19 lakh crore from the same period a year ago. It may be noted that the input costs of these companies had decreased 13.6% to Rs 2.73 lakh crore during July-September 2009 from Rs 3.16 lakh crore during July-September 2008. This is at a time when the total expenditure of the sample companies increased by 20.1% to Rs 5.56 lakh crore during July-September 2010. Total expenditure decreased by 14.5% to Rs 4.63 lakh crore during July-September 2009 from the level of Rs 5.42 lakh crore during July-September 2008.

The net profit of the above companies increased 71.8% to Rs 40,889 crore during July-September 2009 and further rose 65.2% to Rs 67,541 crore during July-Sept 2010. The net profit margin of the above number of companies increased from 4.01% to 10.46% during the above period. The average cost of raw materials accounts for slightly more than 57% of the total expenditure of a company and even a small increase or decrease in its share influences profit significantly. The share of raw material cost to total expenditure increased from 58.39% during July-September 2008 to 59.01% during July-September 2009 and decreased thereafter to 57.42% during July-September 2010. The share of raw materials in total sales of the sample companies decreased steadily during July-September 2010 from the level of July-September 2008. The share has decreased by about 393 basis points from 53.37% to 49.54% during the above period.

Among the 1,743 companies, 802 companies have witnessed a fall in raw material to total expenditure ratio, while 941 companies have shown a higher ratio in July-September compared to July-September 2009. It is known that the decrease in share of raw materials in total expenditure not only improves margins, but also increases competitiveness of the companies. In other words, it indicates better utilisation of raw materials. At the individual level, many sample companies increased the raw material cost significantly during July-September 2010. Some examples include Alok Inds, Orchid Chemicals, Sundaram Clayton, Tinplate Co, Balkrishna Inds and Suzlon Energy.