Raw material spend rises

Written by Pradip Kumar Dey | Updated: Sep 26 2011, 08:06am hrs
Public sector companies saw a sharp rise in their raw material spend in 2010-11, thanks largely to a rebound in sales. High crude oil prices also contributed to the rise in PSUs expenditure on inputs last year.

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.