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Cement (Sandip Bansal)
Budget 2011 impact
Existing excise duty rates have been replaced with composite rates having an
ad valorem and specific component. For most cement companies the new
rate will be 10% ad valorem plus Rs160 per tonne (from 10% of retail sale
price earlier; this is for cement with retail sale price in excess of Rs190 per
bag). Though the exact quantum of increase is not determinable as of now
(dependent on the exclusions from the retail price to determine the price on
which the ad valorem duty would be levied), the increase in excise duty
could be ~1% of selling prices.
Basic custom duty on two important raw materials of cement industry viz.
petcoke and gypsum is proposed to be reduced to 2.5%, we believe this will
help the companies in reducing their raw material cost slightly.
Increased allocation for housing, rural development and infrastructure related
projects expected to further improve demand for cement. Details given in the
Infrastructure section
Sector view: Cautious
We are cautious on the near-term outlook for the cement sector in India as:
We expect industry over-capacity to remain in FY12 due to large capacity
additions
Cost pressures led by rising coal prices could keep profitability in check, we
forecast average ROE will be below 20% over FY12-13
Increasing industry fragmentation across regions will likely impact pricing
power; and
Stocks are trading at a premium to replacement costs. We least prefer the
companies with exposure to the southern region due to high capacity
additions and low consolidation there.
Top picks
Our preferred pick in the sector is Grasim, which we like for its VSF business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement (Sandip Bansal)
Budget 2011 impact
Existing excise duty rates have been replaced with composite rates having an
ad valorem and specific component. For most cement companies the new
rate will be 10% ad valorem plus Rs160 per tonne (from 10% of retail sale
price earlier; this is for cement with retail sale price in excess of Rs190 per
bag). Though the exact quantum of increase is not determinable as of now
(dependent on the exclusions from the retail price to determine the price on
which the ad valorem duty would be levied), the increase in excise duty
could be ~1% of selling prices.
Basic custom duty on two important raw materials of cement industry viz.
petcoke and gypsum is proposed to be reduced to 2.5%, we believe this will
help the companies in reducing their raw material cost slightly.
Increased allocation for housing, rural development and infrastructure related
projects expected to further improve demand for cement. Details given in the
Infrastructure section
Sector view: Cautious
We are cautious on the near-term outlook for the cement sector in India as:
We expect industry over-capacity to remain in FY12 due to large capacity
additions
Cost pressures led by rising coal prices could keep profitability in check, we
forecast average ROE will be below 20% over FY12-13
Increasing industry fragmentation across regions will likely impact pricing
power; and
Stocks are trading at a premium to replacement costs. We least prefer the
companies with exposure to the southern region due to high capacity
additions and low consolidation there.
Top picks
Our preferred pick in the sector is Grasim, which we like for its VSF business.
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