Mumbai Cement stocks fell sharply on Wednesday after cement firms agreed to partially roll back the price hike that they had announced after the Budget and tough talk by commerce minister Kamal Nath on higher profits made by these firms.
The benchmark index of the Bombay Stock Exchange, the Sensex, lost 0.95% in a volatile day, but some of the cement stocks were down by more than 8%. Gujarat Ambuja Cement Ltd was the biggest loser. It lost 8.48% to close at Rs104. It was followed by India Cements, which was down 5.93% and ended at Rs152. ACC, the country’s largest cement maker, shed 4.73% to close at Rs813.94. Two Aditya Birla Group companies, Grasim and Ultratech, lost 0.97% and 1.86% to close at Rs2,104 and Rs805.55, respectively.
Cement stocks have lost in the range of 24-31% since 8 February when the Sensex closed at an all-time high of 14,652.09 points.
India Cements, that closed at Rs220.35 on 8 February, has lost 31% since then. Ultratech has lost 27.54% from its 8 February level of Rs1,111. For Gujarat Ambuja, the loss has been 26.53%, from Rs141.55. ACC has lost 24% from its 8 February closing price of Rs1,066.85.
Nath told TV channel CNBC that the government was examining whether cement companies could absorb the levies the Budget has imposed. The government has increased excise duty on cement by 50%—from Rs400 to Rs600 per tonne—for those firms that have been selling cement in the retail market at over Rs190 for a 50kg bag.
For the cement makers who have been selling in the retail market at a price below Rs190 per bag, the excise duty was cut by 12% to Rs350 per tonne. Since most of the cement firms have been selling at more than Rs200 per bag, they are affected by the hike in excise duty. Following this, the companies had raised the price by Rs12-15 a bag.
Nath said manufacturers should not take the advantage of demand-supply gap to increase their profitability.
He also said the government will not ban cement exports if the companies absorb the levies. Of the 141 million tonnes of cement produced in 2005-06, the manufacturers exported 11mt.
An analyst who tracks the cement sector for a leading brokerage firm in Mumbai, said the government’s decision could impact the profitability of cement companies by 25-30%.
“The government has taken a similar stance for sugar and steel earlier. If the firms are forced to cut down their prices, their profitability will be impacted,” he added.
A senior executive at a cement making firm in Mumbai, who did not wish to be quotede, said “controlling price is not a solution”.
“Cement forms just 1.7% of the wholesale price index. I fail to understand how a commodity whose weightage is so low in the inflation basket,can be responsible for driving up the inflation so much,” says a source at the Cement Manufacturers Association of India.
“We requested the government to review the duties,” Manoj Gaur, president of the association told Bloomberg in an interview.
“It’s natural that if the duties are reviewed, we will immediately review prices,” he added.