Cement industry seeks status quo on excise duty, service tax

The fall in cement prices and improving demand together add cream to the cement product sector, who seek status quo on excise duty and service taxes.

Current Status

Asbestos Cement Products continue to be in demand because of the industry's effort in making in roads into rural markets, its affordability, and other qualities such as corrosion resistance, weather and fire proof nature.

For upgrading from thatched and tiled roofing's there is no other affordable and durable roofing material for the rural poor other than asbestos cement sheets. For FY09, total production for the year was estimated at 38.6 lakh (3.86 million) metric tones, which represents about 107% of the industry's installed capacity of 36.10 lakh (3.61 million) metric tones.

The industry demand as measured by the total sales of the industry has been growing over the years, the growth for the last year being 5% i.e. the sales increased from 37 lakh metric tones in FY08 to 39 lakh metric tones during FY09.

The recent slowdown experience by the urban real estate and infrastructure has dented its demand in the urban area, however the demand from the rural area for the cement products overall has remained healthy.

But the industry sources indicate that the fibre cement sheet industry will continue to grow at 5 per cent per annum despite the overall slow down in the GDP growth and competition from substitute products.

Lately, the industry faces competition in the market from competing substitute products, such as, GI Corrugated Sheets.

However, fibre cement sheets may continue to hold its market as they are better insulator of heat, less-expensive, safer, need no maintenance and last longer when compared to competing roofing material. The industry has still not fully recovered from the slowdown in economy.

Industry Expectation

The present rates of excise, customs and service tax should continue. Service tax should not be touched and should not go back to 12%, since more services are getting included every year, which coupled with buoyancy in services sector is leading to increase in higher service tax revenue every year.

With the likely implementation of GST, the industry expects the present rate to continue.

Government should allocate more funds to infrastructure industry like roads, irrigation projects etc. so that there is a boost to the business in general and growth will be on fast track. 

Analyst Expectations

The government may roll back stimulus package i.e. may partially hike excise duty and service tax rate. But we don't expect any major announcement specifically for the cement product industry.

Stocks to watch

Hyderabad Industries, Everest Industries, Visaka Industries, Ramco Industries

Outlook

The oversupply situation is set to worsen in the cement industry, and the cracks in the cement prices will be more pronounced in the next monsoons starting from June 2010. 

In the last Budget, the cement product industry especially the asbestos cement manufacturers cheer on the impetus given to rural infrastructure -- especially on the thrust given on rural housing by the government through Indira Awaas Yojana which is a positive sign.

The government focuses on the rural and infrastructure growth is big boost for this industry.

Acceleration in urban housing and construction and other infrastructure related activity will revive the demand for the various cement products, which is experiencing excellent demand from the rural markets. However, overall, the budget looks neutral for the industry.