Spotlight: Cement Sector

  • Cement demand growth has lagged GDP growth in the past two years due to slowdown in real estate sector and lack of order inflows in infrastructure sector. Lower than expected demand coupled with incremental supplies have also resulted in declining capacity utilizations for the companies. However, prices have witnessed sharp and intermittent hikes and declines during FY12

  • We expect the upcoming Union Budget to be positive for the cement sector in terms of higher allocations for infrastructure sector, which is the key demand driver for cement growth. We also expect import duty on pet coke, gypsum and coal to be reduced

  • On the flip side, we expect excise duties to be hiked in the budget. Currently, cement sector has a composite rate structure having an ad valorum of 10% and specific component of Rs 80 per tonne for cement selling below Rs 190 per bag and Rs 160 per tonne for cement selling above Rs 190 per bag. Any change in the excise duties is expected to be passed on to the end-user by the companies

  • Overall, the upcoming budget is expected to be positive for the cement sector




By Teena Virmani, Research Analyst


 

 


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