In a move to boost up the demand in domestic market, the government has announced 2% excise duty cut on bulk cement.
Post announcement, excise duty will be levied at 8% or Rs230/tonne; whichever is higher. Post excise duty cut, the prices of bulk cement are expected to come down by Rs3/tonne, provided companies pass on the benefit to consumers.
However, bulk cement contributes just 8-10% of total cement off-take and thus expected to have marginal impact on overall cement demand. Extension of 4% cut in cement beyond March 2009 would help support the demand marginally.
The government has also announced 2% cut in general excise duty from 10% to 8%, which will be applicable on steel products.
Previously, in December 2008, the government had announced across the board reduction in excise duty on cement and steel by 4%. Post excise duty cut, prices of steel products are expected to come down by Rs500/tonne.
We believe that the benefits of excise duty cut will be passed on to the consumers and hence will not have much impact on the profitability of companies.
However, this development may help supporting the demand for Steel and Cement. We remain NEUTRAL on cement and steel sectors.