Higher rates of cement to hit construction
Cement prices are expected to go up marginally, as the GST Council has announced a tax rate of 28 per cent on the product.
The cement industry says the rate is above what was expected, and the increase will most likely be passed on to consumers.
“The industry would try to make use of this to pass on some cost,” Sushil Agarwal, Whole Time Director and CFO, Grasim Industries, told. “If you look at cement, you can pass on only what customers can afford. Ultimately, customer affordability counts. That’s the last leg of the transition. I think it will evolve, but we can’t give a guidance today. GST itself as a subject will take time for things to settle.”
Analysts believe that while it is a welcome move that some of the input materials have been categorised under 5 per cent duty structure, the increased tax rate on the final product may have a slightly negative impact on the industry.
“While a lot of infra and development projects are on-going and many are in the pipeline at the national level, categorisation of cement in the lower bracket would have helped to offer cost effective construction rate for such upcoming projects.
“However, the GST Council has maintained a lower rate of 5 per cent on key inputs like limestone, sand, gypsum and iron ore, which could support cement manufacturers to maintain procurement cost, which may be favourable by virtue of anti-profiteering clause,” said Biren Vyas, Partner, Grant Thornton India.
On the brighter side, lower tax on transport sector could benefit cement companies with lower freight costs, going forward.
“GST rate of 28 per cent for the sector is neutral as the rate differential of 1-2 per cent would be passed on to the end consumer, which should not impact profitability. However, the slab rate is higher than the expected slab rate of 18 per cent, in which case there was expectation that there could be been some margin expansion,” Motilal Oswal Securities said in a note. “The bigger impact of GST for the sector would be in the form of lower freight cost due to efficient movement of fleet and ease of cross border movement of goods.”