EXPECTED BUDGET IMPACT: Neutral
LONG TERM OUTLOOK: Positive
Cement demand growth had started recovering during H1FY13 but lower than expected pick up in construction and lack of infrastructure projects impacted the demand growth in 3QFY13. Cement prices witnessed intermittent hikes and declines led by demand growth during FY13 but have improved significantly in comparison with last year due to slowdown seen in the pace of capacity additions.
We expect Union Budget 2013-14 to be positive for cement sector in terms of higher allocations for infrastructure sector which is the key demand driver for cement growth.
On the negative side, we expect effective excise duties for cement companies to be hiked in the budget. Currently cement companies have to pay an excise duty of 12% on retail sale price after an abatement of 30% with additional component of Rs 120 per tonne. We expect abatement to be reduced and this will result in higher excise duties for the sector, though it is expected to be passed on by the companies.
Sector has also witnessed continued cost pressures in terms of higher power and fuel and freight costs. We believe that costs may continue to remain high going forward also.