Cement upbeat about FY13

The cement sector has attracted a lot of attention this fiscal year. Cement manufacturers have benefited tremendously from the bonanza seen in cement prices, with margins of most cement players rising manifold. Domestic cement prices have risen about 20 percent, on average, on a year-on-year comparison so far this fiscal year. Recently, prices in the northern region of the country had gone down marginally, alerting cement analysts to a possible southward flight of cement prices. However, industry players told BR Research that the phenomenon was only temporary, triggered by the wheat harvesting season - mid-April to mid-May - which occupies the labour class involved in construction activities, resulting in lower cement demand and, consequently, affecting prices. With the season drawing to an end, cement prices are believed to start rising again. On another note, declining coal prices are a further positive for the cement industry. Internationally, coal prices have gone below the 100 dollars per ton mark, meaning that further support will be lent to the margins of local cement players. At the same time, the upcoming budget appears likely to offer more positives for the sector too. The likelihood of FED on the cement sector being slashed in the upcoming FY13 budget is quite strong, with expectations of the excise duty being brought down by Rs200-250 per ton. The FED was reduced by Rs200 per ton - Rs10 per bag - in last budget for FY12. Currently, it stands at Rs500 per ton - Rs25 per bag. The government is believed to phase out the FED completely in three years, which means that by the next budget, i.e. FY14, FED will plausibly be phased out from the cement sector. Besides, the coming fiscal year will also be an election year, meaning that PSDP expenditures are likely to be rosier than has been the case in the past. Consequently, a boost in terms of the volume of dispatches will also be given to the sector. Overall, FY13 holds a lot of promises for the cement sector. Even though industry players are not very optimistic about export prospects in the coming fiscal year, domestic dynamics make it a happy industry in FY13.