India Incs energy costs surge 49% during Q2

Written by Pradip Kumar Dey | Mumbai, Nov 21 | Updated: Nov 23 2008, 04:26am hrs
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Rising expenditure on oil, energy and related items, apart from rising interest rates and manpower costs, has been a reason for the falling profitability of Indian companies, a study carried out by FE has revealed.

The study on 497 major companies (including power and airlines) indicates that spend on energy increased 49% to Rs 25,032 crore during the second quarter of the current fiscal. It was Rs 16,801 crore during the same period of the previous fiscal.

The rise in energy costs is owing to the fact that administered prices have remained stable despite a fall in crude oil prices. Overall, the total expenditure of companies that constituted the sample increased 43.3% to Rs 98,431 crore, from Rs 68,680. The ratio of of energy cost to total expenditure increased from 24.46% during the second quarter last fiscal to 25.43%.

The increasing share of energy cost in total expenditure not only decreases margins, but also disturbs cost control measures of corporates. An analyst from a rating agency said, Oil dependent industries like power, airlines, automobiles, commercial vehicles and logistics have been severely impacted by the price hike. This is reflected in the energy cost of these industries in the second quarter.

Whereas interest rates can be curbed by reducing the debt burden and manpower costs can be rationalised by sacking people or cutting wages, oil prices cannot be cut, he added.

Also, given power deficiency, many companies are rely captive power generation through gensets or co-generation units. These cause energy costs to shoot up as well.

Companies that reported a hike in the energy costs to total expenditure ratio include are Nagarjuna Fertilisers &Chemicals, Hind National Glass and National Aluminium.

Five companies that recorded the highest energy cost during the July-September 2008 quarter are NTPC, Jet Airways, Reliance Infra, Tata Power and SAIL.

Among these, the highest increase in energy cost was observed in the case of Jet Airways(142.5%). The companys energy cost to total expenditure ratio increased from 36.26% to 48.61% during the study period.

Among industry verticals, a significant increase in power and fuel costs was observed in the case of fertilisers, glass products, aluminium, power, airlines and cement. The aggregate power and fuel cost of fertiliser companies increased 80.8% to Rs 1,050 crore during the quarter.