An FE study of 2,099 companies shows that against a 2.2% dip in April-December 2009, their aggregate expenditure on raw materials rose by 23.3% to R10.27 lakh crore in April-December 2010 from the year-ago period.
In comparison, total expenditure of the sample companies was up 21.8% in the nine months to December 2010, versus a 6.4% drop in the same period over 2009.
However, with the net profit margin improving to 7.8% in April-December 2010 over 2009, collective net profit rose 23% to R1.55 lakh crore.
The average cost of raw materials accounts for slightly more than 59% of the total expenditure of a company, and even a small change in its share influences profit significantly.
The share of raw material cost to total expenditure increased from 58.43% during April-December 2009 to 59.18% in the same period of 2010.
Among the surveyed companies, 876 witnessed a fall in raw material to total expenditure ratio, while 1,223 companies showed a higher ratio.
A decrease in share of raw materials in total expenditure not only improves margins but increases the competitiveness of companies. In other words, it indicatesbetter utilisation of raw materials.
In the industry-wise analysis, the ratio of raw material cost to total cost rose substantially for the cigarettes/tobacco, diversified, engineering, ferro alloys, paints, paper, personal care, petrochemicals, pharmaceuticals, sugar, steel, telecom, textiles and tyres segments.
A lower ratio was seen in case of air conditioners, aluminium, auto and ancillaries, cement, diamond cutting, jewellery, distilleries, electronics, fertilisers, food products, pesticides, printing and stationery.