Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The railways which had indicated that it would raise surcharge and cess by 9% w.e.f from
October in the budget, have now raised the hike to 15%. This would increase the freight cost/bag
for cement by Rs2.5/bag. Industry roughly moves 50% of volumes by railways, hence this would
need a 1% price hike to neutralise.
Railways effect a steep increase in freight
In the Annual Railway Budget, the railways had indicated that they would raise the surcharge
by 7%, and cess by 2% w.e.f from mid-October. However, they have notified today that the
increase is actually 13% in surcharge and 2% in cess, so an effective hike of 15%, as
compared to 9% which was earlier intimated to the industry.
This hike which typically is for busy season, would be prevalent upto June 2012.
Impact on cement industry
The industry roughly moves around 50% of the cement by railways, and hence this busy
season hike in freight rates would impact cement like any other commodity.
We estimate the cost impact of the hike would be around Rs2.5/bag, and hence the industry
would have to raise prices by around 1% to neutralise the impact.
Cement prices have moved up post the monsoons in most markets except South India by
around Rs5-15/bag.
Coal availability also could be a issue
The recent media reports that suggest that Coal India would allocate more coal to power
sector could impact cement industry.
Companies like ACC rely on linkage coal from Coal India to the extent of 40% of their need,
and balance is largely sourced from "e-auctions". If power sector is given preference in the "eauctions",
then this could impact the availability of coal for the cement sector.
Overall we remain cautious on the medium term outlook for the cement sector, as demand
growth has been weaker than expected, and cost pressures continue to rise. While the
industry so far has been able to sustain healthy margins, we believe there exist downside
risks to the industry EBITDA margins. We estimate a margin of Rs700-750/mt over the next 2
years, as compared to Rs950/mt achieved in the 1QFY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The railways which had indicated that it would raise surcharge and cess by 9% w.e.f from
October in the budget, have now raised the hike to 15%. This would increase the freight cost/bag
for cement by Rs2.5/bag. Industry roughly moves 50% of volumes by railways, hence this would
need a 1% price hike to neutralise.
Railways effect a steep increase in freight
In the Annual Railway Budget, the railways had indicated that they would raise the surcharge
by 7%, and cess by 2% w.e.f from mid-October. However, they have notified today that the
increase is actually 13% in surcharge and 2% in cess, so an effective hike of 15%, as
compared to 9% which was earlier intimated to the industry.
This hike which typically is for busy season, would be prevalent upto June 2012.
Impact on cement industry
The industry roughly moves around 50% of the cement by railways, and hence this busy
season hike in freight rates would impact cement like any other commodity.
We estimate the cost impact of the hike would be around Rs2.5/bag, and hence the industry
would have to raise prices by around 1% to neutralise the impact.
Cement prices have moved up post the monsoons in most markets except South India by
around Rs5-15/bag.
Coal availability also could be a issue
The recent media reports that suggest that Coal India would allocate more coal to power
sector could impact cement industry.
Companies like ACC rely on linkage coal from Coal India to the extent of 40% of their need,
and balance is largely sourced from "e-auctions". If power sector is given preference in the "eauctions",
then this could impact the availability of coal for the cement sector.
Overall we remain cautious on the medium term outlook for the cement sector, as demand
growth has been weaker than expected, and cost pressures continue to rise. While the
industry so far has been able to sustain healthy margins, we believe there exist downside
risks to the industry EBITDA margins. We estimate a margin of Rs700-750/mt over the next 2
years, as compared to Rs950/mt achieved in the 1QFY12.
No comments:
Post a Comment