Indian cement makers are likely to take a marginal hit after the recent hike in diesel prices for retail and bulk buyers. Since, diesel is mainly used for transportation of cement and raw materials - coal and fly ash, industry experts say it will be adding up to the cost of sales and not the production cost.
Taking into account the costs involved in transportation in terms of per tonne per kilometer, on industry's level it would result in a hike of Rs 1 on a 50 kg bag of cement. Transportation of cement through road accounts for 55 per cent while the rest is shipped largely by rail and to some extent by sea.
"This will not be our costs. Transporters' charges would go up that we will have to compensate while making payments," says managing director of a large cement player. Since 80 per cent of our cement reaches consumption centres via roads in a radius of 400 km from manufacturing site, we will incur an additional cost of around 70-80 paise per bag of cement, he adds.
But in the industry, for some players the transport distance even stretch up to 500-600 km. Industry experts say they would have to see how railways increase their freight rates but that wont have any major impact as rail costs are normally half of the road costs.
On the Bombay Stock Exchange, shares of cement majors traded weak on Friday. Shares of ACC closed a per cent down at Rs 1,345 while those of its sister-concern Ambuja closed 1.5 per cent lower at Rs 196.6. Stocks of UltraTech, which during the day slipped below Rs 1,900 mark, managed to close flat at Rs 1,909.75.
However, sector's executives talked tough about the Rs 9.25 hike for a litre of diesel for bulk consumers. "Cement players transport limestone from mines to plants with their own machinery which is completely based on diesel. This would take our costs higher," said the managing director, cited earlier.
But industry's experts do not echo the same sentiments. "The average distance between limestone mines and plants for the cement industry is around 3 km. Since distance is small, it would not add up to their costs significantly," says a research analysts with a Mumbai-based brokerage house.
This week, already, has seen cement price rise of Rs 10-25 for a bag of cement. "So, how does another Rs 1 hike matter?," asks the analyst. Moreover, according to dealers, from next week onwards prices are likely to go up by another Rs 5-10 till start of February amid expectations of rise in cement demand.
India's current cement consumption stands around 235 million tonnes per annum.