Lower input cost increases cos' profit margin

By siliconindia   |   Monday, 25 May 2009, 23:42 IST   |    3 Comments
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Lower input cost increases cos' profit margin
Bangalore: A large number of Indian companies have posted higher profits by beating sluggish demand conditions in the fourth quarter of last fiscal. It happened after price of raw materials fell. ET Intelligence Group (ETIG) has come up with the statement after analyzing the financial results of 1,500 companies for the March quarter that input costs relative to net sales dropped by 6 percent to 24.8 percent during the period from year-ago levels. The drop has been more pronounced over the last two quarters as the figure for the September 08 quarter was 32 percent. Incase of ITC, the cost of raw materials of the cigarettemaker's accounted for 40 percent compared with the figure of 46 percent in the year ago period. At the same time, operating profit margins climbed by 4.5 percent to 33 percent. Net Profit too gained by 2.3 percent t 20 percent of the total income. This is pretty much the case with India's largest fast-moving consumer goods company Hindustan Unilever Limited (HUL). Company has witnessed the cost of raw materials droping from 53.3 percent of its net sales in the March quarter last year to 51.7percent in the same quarter this year. D Sundaram, Chief Financial Officer, HUL says, "Drop in raw material prices during the March quarter has helped in improving our operating profit margins." Pharma companies too benefited from a fall in input prices. For Cipla, raw material cost as a percentage of net sales decreased by nearly seven percent during the March quarter, largely on account of favourable exchange rates and changes in its product mix. Of course, the sharp fall in crude oil prices from $147 per barrel to less than $40 during the period also helped these companies. JSW Steel's raw material costs as a percent to net sales increased to 74 percent from 54 percent a year ago. Seshagiri Rao, Joint Managing Director, JSW Steel says, "We have had an inventory pile up over the last two quarters. Though sales realizations have dropped, that has been partly offset by the fall in raw material prices." Analysts feel that the downward trend in raw material costs may not continue. V K Sharma, Director and Head of Research says, "For the current quarter, we will again see the raw material costs coming down on an year-on-year basis. Beyond this, we do not see input costs remaining low. we see costs climbing as the increased liquidity is once again expected to push up commodity prices," he added.

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