India: Impact of hike in diesel price on cement sector

India: Impact of hike in diesel price on cement sector
Published: 09 June 2008

According to Karvy Stock Broking report on cement sector: "The hike in diesel price by INR3/l has put an incremental cost burden of INR4140m for the cement industry. We believe cement industry would not be able to pass on the incremental cost to end users due to government’s pressure to curb the rising inflation. Hence the higher freight cost will lead to decline in EBIDTA margin by around 60-70bps and EBIDTA/t by INR32/t for the cement producers.

"Average lead distance in India is around 400km and freight cost per tones is around INR1.5/km which is equal to INR600/t in which 40 per cent would be diesel cost (INR240/t). Diesel cost has increased by around nine per cent means INR21.6/t and INR1.08/bag. Apart from that cement industry’s inbound transportation of raw materials like coal and fly ash will increase by around INR0.5/bag. Overall cost per tones would increase by around INR1.6/bag." reports Karvy Stock Broking.
 We believe cement industry would not be able to pass on the incremental cost to end users due to government’s pressure to curb the rising inflation. Hence the higher freight cost will lead to decline in EBIDTA margin by around 60-70bps and EBIDTA/t by INR32/t for the cement producers.

"Average lead distance in India is around 400km and freight cost per tones is around INR1.5/km which is equal to INR600/t in which 40 per cent would be diesel cost (INR240/t). Diesel cost has increased by around nine per cent means INR21.6/t and INR1.08/bag. Apart from that cement industry’s inbound transportation of raw materials like coal and fly ash will increase by around INR0.5/bag. Overall cost per tones would increase by around INR1.6/bag." reports Karvy Stock Broking.