Budget impact on Cement Sector: UBS Investment

Broking house, UBS Investment Research is come out with report on Budget impact on Indian Cement Sector.

UBS Investment report on Cement Sector:

Budget FY08: excise duty hike negative for sentiment   

Dual-slab excise duty structure

The previous excise duty on cement was Rs400/t. This has been changed in the budget to a dual-slab structure: for cement above the retail price of Rs190/bag, the excise duty will be Rs600/t (Rs30.0/bag); for cement below the retail price of Rs190/bag, the excise duty will be Rs350/t (Rs17.5/bag).   

We believe cost hikes will be passed on

As the retail prices of most manufacturers in all markets (except Andhra Pradesh) are higher than Rs190/bag, the excise duty provision should lead to a cost increase of Rs10/bag for most manufacturers. In the current environment of strong demand (c100% capacity utilisation) we believe cost hikes can be passed on, with little impact on manufacturers' profitability.   

Import duty reduction marginally positive

The import duty on petcoke has been reduced, which should be a small positive for Grasim.   

We continue to favour Grasim, ACC, and Gujarat Ambuja - in that order

We think Grasim remains the most attractive in the sector. ACC and GACL's operating efficiencies are likely to improve because of their association with Holcim.