Raw material costs fall and profitability improves for most sectors

Core sectors such as auto, capital goods, pharma, textiles and metals see a drop in raw material costs
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First Published: Wed, Dec 26 2012. 03 23 PM IST
Some sectors such as consumer durables, capital goods and even auto components which depend on imported raw materials and parts did not display improving profitability compared with a year ago. Photo: Abhijit Bhatlekar/Mint
Some sectors such as consumer durables, capital goods and even auto components which depend on imported raw materials and parts did not display improving profitability compared with a year ago. Photo: Abhijit Bhatlekar/Mint
Updated: Thu, Dec 27 2012. 12 23 AM IST
It’s a no-brainer that raw material prices cooled off during calendar year 2012 as demand for goods and services slackened with global recession. But, the effect on corporate profit and loss accounts was felt with a lag, as companies had to exhaust the high-cost inventory of raw material that they carried.
In the September quarter, BSE Sensex-listed firms across several sectors showed a year-on-year and sequential decline in raw material cost as a percentage of sales. The operating margin consequently seems to have bottomed out.
A more in-depth sectoral analysis by Mint shows that most core sectors such as automobiles, capital goods, pharmaceuticals, textiles and metals have seen a drop in raw material costs. Core commodities such as metals, rubber, plastics, cotton and some chemicals have come off from the peaks they scaled until early this year. Naturally, September operating margin has inched up from a year back and the preceding June quarter.
photo
However, some sectors such as consumer durables, capital goods and even auto components which depend on imported raw materials and parts did not display improving profitability compared with a year ago. Perhaps slackening sales pulled down the operating leverage. Hence, profitability may not have improved as much in these sectors during the September quarter.
Meanwhile, the packaged consumer goods segment stands out in comparison for stagnant profitability over the last few quarters. Prices of food consumables and intermediate products were still reigning high, although they have been on the ebb since the last part of the September quarter. The sector hasn’t seen any improvement in profitability although the ability of most consumer goods makers to pass on cost increases to consumers has prevented margins from shrinking.
Going forward, the consensus among brokerages indicates improving profitability arising out of a more stable rupee and commodity prices.
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First Published: Wed, Dec 26 2012. 03 23 PM IST
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