India cement prices to fall on lower excise tax

India's government reduced excise duty down from 10% to 8% across all industry sectors. The move is expected to lower bulk cement prices by Rs2 to Rs4 per 50 kg.

{reg} As part of a stimulus package announced in December, the Indian government cut excise duty by four percentage points across board which reduced the duty on 50-kg cement bags to 8% and on bulk cement to 10%.

A.L. Kapoor, Managing Director, Ambuja Cement, said "the duty on bulk cement will now come down to Rs 230 a tonne from Rs 290 a tonne. Bulk cement constitutes less than 8 per cent of our total sales," The Hindu Business Line reported.

J. Datta Gupta, Chief Financial Officer, ACC, said "as per our rough estimate prices should come down by Rs 3 to 4 per 50 kg, but we are not clear whether excise duty on bag cement which is ruling at 8 per cent currently will also be reduced by two percentage points."

In December, most of the cement manufacturers including Ambuja Cement, ACC, Binani Cement and UltraTech Cement responded to the Government stimulus package by reducing prices by Rs 4 to 6 per 50 kg bag, The Hindu Business Line said.

K.C. Birla, Senior Executive President and Chief Financial Officer, UltraTech Cement, said "excise duty on the trade segment (bulk buyers) is now on par with the retail segment. We will reduce bulk cement prices by Rs 3 per 50 kg."

At present, cement costs on an average Rs 215 to Rs 235 per 50 kg bag, while bulk cement is sold marginally lower depending on the quantity purchased, said a dealer.

H.M. Bangur, Managing Director of Shree Cement Ltd, and President of Cement Manufacturers Association said, "I cannot comment on behalf of the industry as I have not seen the notification yet, but as a company we will pass on the entire benefit to the end users. It will result in a reduction of Rs 2 to 4 per 50 kg depending on location of the consuming centre."

Analysts said margins for cement companies will continue to be under pressure due to the current demand-supply dynamics. The surplus will range between 12 and 15% in 2009-10, adding to pricing pressure.

Vinod Juneja, Managing Director, Binani Cement, said "the reduction in prices of bulk cement will help real estate companies to bring down cost and will enable them to pass on the benefit to home seekers."

The uptake in cement demand since January seems to be continuing and is expected to remain intact till April. "The demand has been good and may continue till March-April beyond which it will depend on the GDP growth," said Mr Birla, The Hindu Business Line concluded.