Budget 2011-12: What’s in store for the cement sector?

No solid decision expected for the cement industry.

KARACHI:

Fiscal 2011 was a year to forget for cement manufacturers as sales and profits plummeted, according to InvestCap.

The government’s lethargy in focusing on developmental activities due to a 77 per cent decline in Public Sector Development Programme, the devastating floods coupled with 27 per cent increased in cost of coal hampered the industry, according to an InvestCap research note.

However, an allocation of Rs710 billion for PSDP and a seven per cent decrease in the price of coal is expected to aid in the industry’s revival

Expected budgetary measures

• PSDP allocation of Rs280 billion to the federal and Rs430 billion to the provincial will bode well for the sector. The main factor is how much of the allocation is utilised. The Recent trend has shown a 24 to 40 per cent utilisation, anything above the level of fiscal 2011 should be considered a positive, adds the research note.

•Federal Excise Duty is expected to remain at Rs700 per ton and Special Excise Duty at the current level of 2.5 per cent due to the government’s escalated revenue collection target of Rs1.9 trillion.

Outlook and recommendation

Sales fell nine per cent to 25.7 million tons in the first ten months of fiscal 2011. Reconstruction across the country following the floods will revive the much dampened cement demand, says the note.

This is expected to provide the industry with improved profitability as prices in the local market are better than export prices. On the whole, the upcoming budget is expected to be neutral for the industry, says the note.

Published in The Express Tribune, May 27^th, 2011.