Will Budget 2012 allow a demand pick-up for cement cos?
The cement industry is currently facing a double whammy due to the hike in freight rates and the possibility of an excise duty hike. Any favorable move for the industry will send cement stocks soaring
The Union Budget 2012 to be presented on 16 March is not expected to bring about any industry-specific changes for the cement sector . However, the sector is eagerly awaiting a demand pick up and this will be possible if the government decides to announce new schemes that will involve an additional spend on infrastructure projects.
The cement industry is currently facing a double whammy due to the hike in freight rates and the possibility of an excise duty hike. A hike in freight rates by 9 to 33 percent is expected to increase the average freight cost per tonne of cement by around 10 percent. Moreover, industry experts are also expecting a 2 percent hike in excise duty in the forthcoming Budget.
Here are some key events that could have an impact on the cement sector:
• Spending on infrastructure sector - Kotak believes that an increased spend on infrastructure is required for cement demand revival and they expect the government to go ahead with this as it is inline with the government's target to achieve higher GDP growth.
•Excise duty - while the industry would like a reduction in excise duty, there is a likelihood of a 2 percent increase. However, Angel Broking does not expect this to have any major impact as the hike is expected to be passed on by manufacturers to the end consumer.
•Import duty - currently there is a 5 percent and 2.5 percent import duty charge on raw materials like thermal coke and pet coke. If the government decides to abolish this, then it will be a positive signal for the sector as it will result in reduced power and fuel costs.
•Customs duty on import of cement - The imposition of a basic customs duty on cement imports augurs well for the sector which has been grappling with low utilisation levels.
•Abatement on excise duty - While the industry would like a 55 percent abatement on excise duty as against no abatement allowed currently, so far the government has maintained a status quo as it could have an impact on indirect tax collections.
Hence, any favorable move for the industry will send cement stocks soaring while any step against the industry would bring a correction in their prices.