Coal import duty cut to help bottom lines of cement firms.

A reduction in the cost of coal imports due to reduced import duties from the financial year 2012-2013 is likely to improve profit margins of large cement companies reliant on imported coal. Industry officials estimate the cost of production to drop by at least Rs 300-400 per tonne, thanks to the fall in fuel cost.

Vinita Singhania, managing director of JK Lakshmi Cement, said: “The removal of customs duty of 5 per cent on coal import will help bring down production cost by around Rs 300-400 per tonne. This will definitely help to improve margins of companies.”

Singhania estimates J K Lakshmi’s fuel cost to get reduced by around 10 per cent as a result of the preferential rates for import of coal. The company’s fuel cost for the financial year 2010-2011 amounted to Rs 319.44 crore.

A study by a parliamentary standing committee on commerce had estimated power and fuel cost to account for 8 per cent of the cost of manufacturing cement.

Vinod Juneja, MD at Binani Cement, said the company imports around Rs 50 crore worth of coal and the reduction in duty on coal imports would help the company save on fuel cost. In the Union Budget for 2012-2013, the government proposed to waive off 5 per cent import duty on steam coal.

Rajesh Kumar Ravi, an analyst at Karvy Stock Broking, said that although cement companies have increased prices and there has been a reduction in import duty on coal, the earnings before interest depreciation and amortisation margins would improve marginally from last year as freight costs have gone up significantly.

Cement manufacturers have already passed on the hike in excise duty to customers. Singhania said while few companies have already increased prices to pass on the excise duty hike of 2 per cent, she is yet to take a call on it.

The president of the Cement Manufacturers Association said most cement companies have already passed on the increase in excise duty to consumers. “Companies have increased prices by around Rs 5-10 per bag that is slightly higher than the excise duty hike.”

According to a dated tariff commission study, housing accounts for around 64 per cent of the cement consumed in India followed by the infrastructure sector at 17 per cent. Use of cement by commercial and institutional customers accounts for 13 per cent of sales.

Source : mydigitalfc.com