An FE study reveals the aggregate expenditure of 40 listed PSUs on raw materials increased by 19.9% to R3.58 lakh crore in 2010-11 from the level of R2.98 lakh crore in 2009-10, when there was a 9.6% decrease from the previous year (2008-09) figure of R3.31 lakh crore.
Kishor P Ostwal, CMD, CNI Research, said:Post-Lehman collapse, commodity prices had vertically collapsed in 2008-09, resulting in a lower cost of raw material and inventory for companies. Since the raw material used in 2009-10 was out of the low-cost inventory of 2008-09, the raw material cost was lower that year. However, in 2010-11 commodity prices have increased substantially, which reflected in the higher cost of raw material for the PSUs.
Reflecting the pattern, total expenditure of the sample companies decreased by 11.3% to R6.67 lakh crore during 2009-10 (R7.52 lakh crore in 2008-09) and thereafter increased by 22.1% to R8.14 lakh crore during 2010-11. Still their net profit decreased from 26.2% during 2009-10 to 8.9% during 2010-11.
The average cost of raw materials accounts for slightly more than 44% of the total expenditure of a company and even a small increase or decrease in this share influences profit significantly. The share of raw material cost to total expenditure winessed a see-saw during the last three financial years. It rose from 43.97% in FY09 to 44.81% in FY10 and since marginally decreased to 43.99% in FY11.
The share of raw materials in total sales decreased last year from the level of FY09 by about 70 basis points from 39.95% to 39.25%. Among the 40 PSUs, 24 saw an increase in the raw material to total expenditure ratio.