India Inc appears to get weaker at managing inventories. In the last three years, a number of companies witnessed increase in their inventories and they are not being able to manage and reduce the inventories-to-sales ratio, thus effectively increasing the cost of bearing them.

According to an FE study of inventories of 1,169 major companies (sales above Rs 1 crore) between 2007-08 and 2009-10, the ratio increased to 14.74% in 2009-10, reflecting poor management of inventories by the big corporate sector. In 2008-09 and 2007-08, the ratios stood at 12.46% and 14.01%, respectively.

The total inventories of these companies increased by 4.9% to Rs 2.57 lakh crore in 2008-09 from Rs 2.45 lakh crore in 2007-08 and further increased by 23.7% to Rs 3.18 lakh crore last fiscal. The sales of these companies increased by 4.6% in 2009-10 as against 18% in the previous fiscal.

?Post 2009, the business scenario catch up with the GDP momentum, as a result business communities increased their inventory positions. High-cost inventories has dented the profitability during the last quarter and entrepreneurs are looking for improving pricing in order to adjust their high cost inventories and low profitability,” said Kishor P Ostwal, CMD, CNI Research.

Of the 1,169 companies in the study, 540 reported a decline in the inventories to sales ratio while 618 recorded a rise in 2009-10 from what they registered in 2008-09. For 11 companies, the numbers stayed at the same level. Many of them, particularly those in the steel and the automobiles & ancillaries industry , showed significant decrease in their ratios in 2009-10 as against 2007-08. This indicates they have managed their inventories properly.

In the steel industry, Tata Steel recorded a drop in its ratio from 13.26% in 2007-08 to 12.34% in 2009-10. While its actual inventory increased by 33.6% to Rs 3,480 crore in 2008-09 and decreased thereafter by 11.6% to Rs 3,077 crore during 2009-10, its sales figure increased 26.9% during the same period. This indicates that inventory management in Tata Steel has been maintained properly during the last three years.

In automobiles and ancillaries group, Maruti Suzuki showed a steady decline in its ratio, from 5.80% in 2007-08 to 4.15% last fiscal. While its actual inventory level increased by 16.4% to Rs 1,208 crore in 2009-10 from Rs 1,038 crore in 2007-08, its sales figure rose 62.6% to Rs 29,098 crore in 2009-10 from the Rs 17,891-crore level in 2007-08.

Among the industries studied, nine industries, including aluminium, cigarettes, diversified (Grasim Industries,Century Textiles ,Kesoram Industries) ,electric equipment, pharmaceuticals, sugar and textiles, had inventory-to-sales ratio above 20 % last fiscal. Mention may be made of. In 2007-08, there were eight industries with inventories-to-sales ratios of 20% or more.

Automobiles & ancillaries, fertilisers, refineries and tyres were those with very low inventory-to-sales ratios in 2009-10. The best achievers in 2007-08 were automobiles & ancillaries, cement, electronics, petrochemicals and refineries. Industries which have lowered their inventory share in sales significantly last fiscal from 2007-08 were automobiles & ancillaries, fertilisers, paper, steel, tea and tyres. In case of fertilisers, the inventory level declined 12.5% to Rs 3,195 crore in 2009-10 from Rs 3,652 crore in 2007-08. But its sales has increased by 21.1% during the same period.