Above Rs 190, CVD will hit foreign cement

Above Rs 190, CVD will hit foreign cement
19 April 2007

Turns out, imported cement may not be cheaper after all, if a government clarification to its own notification and the Finance Bill are anything to go by, according to DNA of India.

The clarification specifically states that if the declared retail sales price of cement exceeds Rs 190/bag, countervailing duty (CVD, in lieu of excise) will apply.

Logically retail price will have the same meaning as specified in the Finance Bill (including freight & other related items), wrote Urmik Chhaya and Nirav Parikh of Alchemy Share & Stock Brokers.

With a CVD of Rs 30.9/bag (Rs 618/tonne) plus 4% special additional duty (levied post CVD), and adding up secondary freight, imported cement can’t work out to be cheaper than domestic cement, he said in a note to clients on Tuesday. Thus, besides logistics, even price advantage is ruled out, Chhaya said.

Except, perhaps, when carted in via road from Pakistan to contiguous markets.

Does that mean things return to hunky-dory for cement firms?

Potentially, it improves the short-term picture for cement firms, said an analyst.

"The benefit of the clarification can last this year - if the government doesn’t come up with something more draconian," he said.

But share prices of cement makers will start discounting the 90 million tonne per annum additional capacities coming up in the next 2-3 years from the third quarter onwards, analysts said.

Merrill Lynch’s Reena Verma Bhasin, in a note to clients on Wednesday, forecast an average 25-30% earnings decline for most cement majors in the 2008-09 financial year due to expected pressure on cement prices in the second half of that year.

Profitability in the just-past fourth quarter of last financial year, however, is expected to be strong.
Published under Cement News