India Inc’s Q4 input cost growth drops

Despite the rise in commodity prices,the growth in input costs of India Inc dropped during January to March 2011 as compared with the same quarter in 2010. A FE study reveals that the aggregate expenditure of the 1,815 companies on raw materials increased by 27.2% to R4.19 lakh crore during January to March 2011 as compared with 38.2% to R3.30 lakh crore during the quarter ended March 2010.

On the other hand,the total expenditure of the sample companies also increased by 31.2% to R5.70 lakh crore during January to March 2010 from the level of R4.34 lakh crore during January to March 2009 and increased further by 23.6% to R7.05 lakh crore during January to March 2011. The net profit of the above number of companies increased by 19.6% to R55,791 crore during the quarter ended March 2010 and further increased by 8.1% to R60,317 crore during the quarter ended March 2011. The net profit margin of the above number of companies decreased from 9.21% to 7.49% during the above period. Prices of many industrial raw materials such as minerals,fibres,rubber,coal and crude oil have seen sharp increases during the forth quarter.

Increase in the share of raw materials in total expenditure not only reduces margins,but also decreases competitiveness of the companies. In other words,it indicates poor utilisation of raw materials. Among the 1,815 companies,774 companies have witnessed a fall in raw material to total expenditure ratio, while 1,041 companies have shown a higher ratio in Jan.-Mar.’11 compared to Jan.-Mar.’10.

The average cost of raw materials accounts for slightly more than 59% of the total expenditure of a company and even a small increase or decrease in its share influences profit significantly. The share of raw material cost to total expenditure increased from 54.94% during Jan.-Mar.’09 to 57.87% during Jan.-Mar.’10 and increased further to 59.49% during Jan.-Mar.’11. The share of raw materials in total sales of the sample companies also increased steadily during Jan.-Mar.’11 from the level of Jan.-Mar.’09. The share has increased by about 499 basis points from 47.19% to 52.18% during the above period.