Cement Industry Awaits GST Cuts

Indian Cement Industry Expects 18% GST against Current 28

The Cement Manufacturers Association of India has long been lobbying for the reduction in the GST for cement. They had argued that a cut in the tax rate would help as it would boost infrastructure spending. This sounds good to a government looking to create more jobs and boost the economy. On a secondary level it could be a big shot in the arm for stakeholders like individual homebuyers and builders.

GST Council To Meet September 28th

The CMA is taking heart at Finance Minister Mr. Arun Jaitley's earlier statement that the GST Council may look to reduce the tax rates on cement, air-conditioners and large screen televisions as revenues improve. The GST Council is slated to meet for two days, beginning September 28 and may take up a proposal to cut the tax rate on cement to 18 per cent from 28 per cent as the move may create more jobs and boost the economy ahead of the general elections.

On the other hand, informed sources imply that a dip in the August revenue collection could weigh on the council's decision on a cut. The council may not immediately cut the tax rate on the cement sector as it would have a revenue impact of around Rs. 1,000 crore per annum according to some estimates. Furthermore, the GST Council in July had reduced the tax rate on around 30 items, including paints and white goods such as refrigerators and washing machines, to 18 per cent from 28 per cent, which had a revenue implication of about Rs. 10,000 crore per annum. Whether, the Government is willing to forego another Rs.1,000 crore per annum so close behind is anyone's guess.

In a related note,  GST collections for August declined 1.7 % to Rs. 93,960 crore from Rs. 96,483 crore in the previous month. However, insider analysts have argued that a cut in the GST rate for the construction sector will boost demand and increase revenue collection. At present, while cement is taxed under the 28 per cent slab, many other items used in construction sector are in the 18-per-cent slab.

Related trivia : Construction in India is a labour-intensive sector that contributes 8 % to the Indian gross domestic product.

On unrelated news, cement shares declined.

UltraTech Cement (down 2.67%),
ACC (down 1.34%),
Ambuja Cements (down 1.25%),
Grasim Industries (down 0.39%).
Grasim has exposure to the cement sector through its holding in UltraTech Cement.

Indian Cement Industry Update

The Indian Cement Industry began 2018-2019 on firm ground as a majority of cement companies showed a decent volume growth in the first quarter. #ACC and #AmbujaCements, two of India's biggest cement companies who are part of the global cement giant #LafargeHolcim, reported commendable profits in the second quarter of 2018 on the back of healthy volume growth.

With a pick-up in infrastructure development activities, cement demand is expected to remain steady. Government spending on infrastructure, along with common-man housing schemes, is expected to push the Indian cement industry growth to 7%-8% in the current financial year.

On the cost front, the beginning of 2018 turned out to be a challenging as the Indian Cement industry faced multiple obstacles like sand mining ban, pet coke ban and rising fuel costs. However, the worst seems to be over as some of these cost dependant issues seem to have been solved. Relative to that, companies are showing minor improvement on a quarter-on-quarter (QoQ) basis as rising input cost pressure appear to have stabilised. Based on the latest quarter results, the operating profit margins of both ACC and Ambuja Cements have improved on a quarter-on-quarter (QoQ) basis.

The Indian Cement Industry is looking to improve capacity utilisation in near future as the cement demand environment riding on the back of pick-up in infrastructure and housing is expected to remain upbeat.

Ambuja Cements' Share Prices Rise

Riding on the dividend from ACC at Rs. 141 crore, the profit after tax during the quarter under review rose to Rs. 499 crore from Rs. 392 crore for the corresponding period of the previous year.

The cement major's net sales grew to Rs 2,927 crore from Rs. 2,817 crore earned during the quarter ended June 30, 2017.

Leading Cement Makers Penalised

NCLAT dismisses cement makers' plea against penalty for cartelisation.

In a major setback to India's leading cement producers, the National Company Law Appellate Tribunal today dismissed their plea against the approx. Rs 6,300 crores penalty imposed by India fair trade regulator over alleged cartelisation in the cement sector. The appellate tribunal also upheld that the penalty imposed by the Competition Commission of India (CCI).
The appellate tribunal observed that the fair trade regulator had imposed a minimum fine.

Some cement makers in consultation with their legal departments are likely to challenge the order before the Supreme Court.