Cement prices may fall after excise duty cut on fuel, helping infra sector

Shree Cement says will take a cut of Rs 5 per bag and other companies are expected to decide soon.

The government’s cut in excise duty on fuel will help the cement industry save on transport and freight costs, companies and analysts have told Business Standard.

The savings will help companies pass to cut prices for cement users, like construction and infrastructure industries.  "We will most likely take a price cut of Rs 5 per bag because of the excise duty reduction on diesel. Transporters will gain from this move and those benefits will be most likely passed to us. We will, of course, pass those benefits to the consumer," said H M Bangur, managing director of Shree Cement.

Shravan Shah, vice-president, research and analyst, infrastructure and construction at brokerage Dolat Capital, predicted a price drop of Rs 3-5 per bag of cement. "It is a marginal drop in terms of cement prices. But if viewed against the persistent inflationary pressures that cement companies have been feeling in recent months, the price cut will be a welcome move," he said.

UltraTech Cement and JSW Cement are yet to announce a price cut. Bangur said that the picture will get clearer in the next few days for the industry as a whole. "We were the first ones to announce that we would pass on the benefits of the fuel price cut to consumers. Hopefully other companies may also consider a similar move," he said.

To put things in perspective, logistics, power and fuel are a large expenditure component for cement companies. With rising crude prices and a weak rupee, freight and fuel costs have remained a challenge for cement companies, prompting most to take price hikes.

In April, most cement companies raised prices by 8.33 per cent to Rs 390 a 50-kg bag from Rs 360 a bag. In May, the expectation was that there would be another round of price hikes by cement companies to the extent of Rs 20 per bag.

The quantum, some analysts say, could be reduced now to about Rs 15 per bag in view of the diesel price cut.

According to Centrum Broking’s Q4 update on UltraTech Cement, power, fuel, freight, and handling expenditure accounted for 55 per cent of the total cost, on a per tonne basis.

“We expect our coverage of cement companies in Q4 of FY22 to report a 23 per cent year-on-year decline in net earnings due to flat volumes and increased cost of production,” said Sharekhan.

“The universe of building material companies could see pricing-led growth that would result in a 29 per cent yearly rise in revenue, though higher raw material and gas prices could drag net earnings down. This trend could continue into FY23,” the brokerage said in a recent report.