Raw material costs rise to 59% in FY07

Written by Pradip Kumar Dey | Mumbai, Jul 14 | Updated: Jul 20 2007, 06:58am hrs
Rising prices, inflation and availability issues saw the average cost of raw material consumed rise to around 59% of the total expenditure incurred by manufacturing companies, making it the most significant cost element for them in the financial year 2006-07. A survey of 600 major manufacturing companies (with sales above Rs 100 crore) reveals that the share of raw material costs as a percentage of total expenditure increased by about 1.78 percentage points to touch 59.42% in 2006-07, from 57.64% in 2005-06.

The trend is so significant that it prompted Tata Motors chairman Ratan Tata to accept that there continue to be pressures on margins arising from rising prices of raw materials like steel, non-ferrous metals, rubber and engineering plastics. Among the 600-odd companies surveyed, raw material cost as a percentage of total costs shot up for 343 companies in 2006-07 compared with 2005-06, while it came down for 257 companies.

The companies that witnessed significant rise in raw material costs were Bhushan Steel (85.61% in FY06 to 91.14% in FY07), JK Tyre & Industries (70.88% to 76.74%), Asian Paints (67.53% to 71.38%) and Tata Motors (78.58% to 79.71%).

However, there were companies that managed their costs better. Jindal Saw (87.02% to 78.74%), Hindustan Unilever (46.79% to 45.74%), Cipla (65.30% to 61.62%) and SAIL (51.94% to 49.25%) were the prominent ones witnessing a fall in raw material cost as a percentage of total costs.

In aggregate terms, expenditure of the companies surveyed saw raw material expenses increase by 28.5% to Rs 7,25,030 crore during FY07 from Rs 5,64,352 crore during FY06.