The domestic cement industry, which has been raising prices continuously since the beginning of this year, has not been able to comprehend whether the Budget was a relief or brought extra burden. Industry experts, however, said the measures would have neutral impact on the industry.
The government has proposed to replace the existing excise duty rates, which stood at 10 per cent, by ad valorem and specific component. It also reduced the import duty on two critical raw materials — petcoke and gypsum — to 2.5 per cent from the earlier 5 per cent.
The existing two price slabs were retained — below Rs 190 a bag of 50 kg and above Rs 190 a bag. However, since the all India average price currently is hovering around Rs 250-260 for a bag, the second slab has gained importance on which the government has imposed 10 per cent ad valorem and an additional Rs 160 per tonne. The additional charges would mean an increase of Rs 8 for a cement bag. Top officials in the industry, including CEOs and CFOs, declined to comment on the future pricing strategy. “Things are not yet clear. We do not know whether this restructuring of duties will add or reduce our burden,” said chief financial officer of a north-based cement player.
Earlier, the budget note said, the ad valorem rate was applicable to the retail sale price. However, now it will not be on the retail price. “For the purpose of ad valorem component, the value would no longer be the retail sale price but the transaction value determined under Section 4 of the Central Excise Act, 1944,” noted the budget release.
Transaction value, excise duties expert said, will be the ex-factory prices. However, according to cement companies their sales from factories are negligible and that their sales are mainly from the depot which are away from the factories and near the market places.”
Bringing the produce from the factories to depot adds up the prices,” said chief marketing officer of one of the leading pan-India players.
More From This Section
Currently, on an average, the freight charge is around Rs 35 a bag of cement while same is given as sales tax. This further is added upon by the dealers’ margin of Rs 8 per bag.
According to industry experts, depending on where the ad valorem is charged, there will either be a relief of Rs 2-3 per bag or an extra burden of around Rs 2 a bag. “Taking into account the relief given in terms of cuts in custom duty on petcoke and gypsum, there will be neutral impact on the existing prices,” said research head of Mumbai-based broking house.
Reduction in customs duty on petcoke will bring a downside impact of 50-70 paisa a bag of cement while that of reduction in petcoke will be around Rs 1 a bag, said an industry analyst.
The industry has a total manufacturing capacity of close to 300 million tonnes per annum. Players like ACC, Ambuja Cements, UltraTech Cement, Jaiprakash Associates, Shree Cement and India Cements control over half of the domestic market.
The recent rise in prices have not come due to the rise in demand for the building material, rather disciplined supply to the market by cutting down production has resulted into an increase. Industry analysts said there was no remarkable surge in demand for cement and with no substantial increase in expenditure on infrastructure, cement industry may not see growth of double digit in the coming year.