Cement sector positively impacted by GST
Cement producers will pay an effective rate of 28% under GST, lower than the earlier effective rate of about 27%-31% after taking into account various state-level taxes and duties.
The bagged form of cement, which account for about 90% of total volume in India, is set to benefit the most, as it had a higher tax rate of around 31% under the old system.
Lower GST rate on coal, a major component of the fuel costs, of 5%, against about 12% earlier, will also bring down the cost for the producers. Companies will also be able to optimise their storage and transportation costs with the removal of state-level entry taxes and local levies.
“We expect all of these factors to lower costs for cement producers and support earnings,” Fitch Ratings said in its report.
Fitch expects larger cement producers like UltraTech Cement taking full advantage of potential cost-optimisation opportunities under the new GST regime, given their large scale and pan-India presence. UltraTech Cement has already announced a reduction in retail prices by nearly 3% following the GST announcement.