With the cement sector struggling because of oversupply, the increase in excise duty would harm it in the near term. The industry is, however, hoping that there may be some abatement provided on non-production related elements, such as freight, which would mitigate the impact.
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Yet, firms may face additional excise duty of at least Rs 4-8/bag. The reduction in customs duty from 5% to 2.5% on pet coke and gypsum may help some importers.
Meanwhile, rising material and power costs are estimated to hit margins by at least 200 basis points from the present levels. One basis point is one-hundredth of a percentage point.
Not surprising then that share prices of big cement firms such as ACC Ltd, Ambuja Cement Ltd and India Cements Ltd fell sharply.
Other factors affecting the sector: oversupply due to high capacity build-up; demand-supply mismatch has led to weak cement prices; rising freight and power costs are affecting profits.