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Cement sector outlook and GST impact

By Nidhi Jani | 6/9/2017 3:24 PM Friday

India is the second largest producer and consumer of cement in the world having total production capacity of 282.8 MT in 2016. According to India Brand Equity Foundation (IBEF), domestic cement consumption grew by 15.7 per cent CAGR during FY11-17 and demand is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025.

The industry is expected to grow over the next few years supported by a revival in rural demand and increased spending by government on infrastructural projects. Also, development of 98 smart cities projects, Swachh Bharat scheme and hasty urbanisation can act as a demand booster.

Further, investment by the government on Road Transport (Rs. 29,000 crore) and Highways (Rs. 64,900 crore) will lift the cement demand during the next fiscal. Also with the government decision to shift from bitumen to cement for construction of all upcoming projects will impact the industry positively. The decision was taken as cement is more durable and cost effective and the move will benefit the cement companies both in the medium and long term.

The housing sector, which contributes around 67 per cent to total cement demand, is likely to grow over the next few years, supported by mounting urbanisation and easy home loan availability.

Recently, the government has fixed GST rate of 28 per cent for cement, whereas existing tax rate is 24 per cent. This slight increase in tax rate may lead cement companies to hike prices. However lower tax on transportation sector and lower freight cost could benefit cement companies. The industry can also benefit from the 5 percent decrease in the tax rate on coal and metal.

In the recent result announcements, cement major Ultratech Cement and Shree Cement registered a decline in profits by 11.3 per cent and 54.1 per cent, respectively. Whereas India Cements and The Ramco Cements posted a significant volume growth supported by improved demand from AP and Telangana.

According to the Cement Manufacturers Association (CMA), the industry had a decline of 1 per cent in the last fiscal, although the CAGR growth of the industry of last five years was around 4 per cent.

 

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