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Global economic recovery, which boosted demand across the spectrum of industries, has pushed up input costs for Indian corporates in the fourth quarter of 2009-10. An FE study reveals that the aggregate expenditure of 1,141 companies on raw materials increased by 49.6% to Rs 1.91 lakh crore during January-March'10 from Rs 1.28 lakh crore during January-March'09. Meanwhile, the total expenditure of the sample companies too increased by 32.4% to Rs 2.83 lakh crore during January-March '10 from Rs 2.14 lakh crore during January-March '09. Operating profit for the above companies increased by 42.4% to Rs 53,899 crore during January-March '10.The operating profit margin of the above number of companies increased from 15.58% to 16.49% during the above period.The average cost of raw materials accounts for slightly more than 68% of the total expenditure of a company and even a small increase or decrease in its share significantly influences profit. The share of raw material cost to total expenditure increased from 59.96% to 67.75% during January-March '10.The share of raw materials in total sales of the companies increased during January-March '10 from the level of January-March '09. The share rose by about 592 bps from 52.73% to 58.65% during the above period.Among the 1,141 companies, 432 witnessed a fall in raw material to total expenditure ratio, while 709 companies have shown a higher ratio in January-March'10 compared to January-March '09. It is known that the decrease in share of raw materials in total expenditure not only improves margins, but also increases competitiveness of the companies.In other words, it indicates better utilisation of raw materials. At the individual level, many sample companies increased raw material costs significantly during January-March '10. Mention may be made of Ashok Leyland, Biocon, SRF and Chemplast Sanmar.In the industry-wise analysis, the ratio of raw material cost to total cost for 35 industries was studied. A significant increase was noticed in the case of auto and ancillaries, cement & products, chemicals others, diversified, electric equipment, engineering, jems & jewellary, paints, petrochemicals, pharmaceuticals, plastics, refineries, steel, sugar, textiles and tyres.A reverse trend was seen in the case of aluminium, electronics, fertilizers, food & products, paper, personal care, solvent extractions and vanaspati. Significant increase in raw material costs during January-March '10 was observed in the case of auto & ancillaries, cement & products, diversified, gems & jewellery, petrochemicals, plastics, refineries, sugar and tyres.Among the cement companies studied, significant increase in raw material cost was registered in the case of Prism Cement. The company's raw material cost increased to Rs 547 crore during January-March '10 from the level of Rs 19 crore during January-March '09. The ratio of raw material cost to total cost of the company also increased from 11.49% to 29.02%.
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