Saturday, February 3, 2007

Improved Profitability Due to Increased Operating Efficiencies

CRISIL has conducted a study on the operating performance of about 5000 Indian companies in nine key manufacturing industries. The study indicates that these companies have been able to improve their profitability because of increased operating efficiencies.

So while the Net Sales grew between 2001-02 and 2005-06 by 15.13%, the operating profits rose by a higher 22.39% despite rising prices.

During the period under consideration (2001-02 to 2005-06) there has been a substantial increase in prices of critical input materials like crude oil, natural gas, steel and base metals resulting in an increase in prices of derivatives products, which are raw materials (RMs) for all major manufacturing companies.

The companies studied have not only been able to offset the impact of rising RM prices on their operating margins, they have actually expanded the operating margins by increases in end product prices and operating efficiency.

However, going forward, the ability to increase end product prices may be limited. Hence, to expand margins companies will have to rely largely on operating efficiency.

CRISIL believes that this commentary will be of interest to you. They will be glad to receive your views and comments on this commentary at CRISILratings@crisil.com. And me too!

Improved efficiency also means a lean, fit and competetive organisation. That is why we are increasingly showing our presence in the International market.
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