But benefit of lower tax may not be passed on in full to trade segment, fear analysts
MUMBAI, DECEMBER 14
After remaining listless for long, most cement stocks gained on Friday on expectations the government would slash the GST on construction items, including cement, to 18 per cent from 28 per cent at its meeting next week.
Shares of the country’s largest cement producer UltraTech Cement and Shree Cement were up 1 per cent each at ₹3,998 and ₹16,935, respectively. India Cements and Orient Cement gained 2 per cent each at ₹94 and ₹80, respectively. Ambuja Cements and Ramco Cement were up marginally at ₹219 and ₹630, respectively.
Kabir Rai, Research Analyst, IndiaNivesh Securities, said the benefit of lower GST rate may not be passed on entirely to the trade segment.
On the other hand, he added, the change in GST rates will not impact the supply-demand equilibrium as demand in this sector is primarily driven by infrastructure projects and rural housing initiatives of the government which will not change materially by the price adjustments.
The rising production cost amid weak demand has squeezed the profitability of cement companies. Some of the cement companies are still expanding their capacity to maintain their market share when demand revives.
Ambuja Cements’ move
Ambuja Cements recently topped up its ₹1,390-crore expansion plan in Rajasthan with an additional investment of ₹960 crore.
It will set up additional 1.4 million tonne clinker capacity, and grinding facility of 1.8 mt along with a captive power plant and waste heat recovery system at Marwar Mundwa in Rajasthan.
While the cut in GST on cement is expected to bring down prices, the excess supply overhang in the market may weigh heavily even as demand is limping back after the washout during the monsoon season last quarter, said an analyst.
The government’s intention to retain only luxury items and demerit goods in the 28 per cent slab has got a shot in the arm after the recent election debacle, he added.
The GST Council, chaired by Finance Minister Arun Jaitley and comprising State counterparts, has already pruned the the number of items in the 28 per cent slab by 191 goods over the last one-and-a-half year, leaving only 35 items in the highest slab.