More utilisation: Higher development allocation augurs well for cement sector

Analysts believe PSDP projects will help Pakistani industry.


Farhan Zaheer May 30, 2014
This will be another record year for the cement industry due to higher allocation to the PSDP and an increase in construction activities. PHOTO: FILE

KARACHI:


With increased allocation for development programmes and the industry’s strength to increase prices unilaterally, cement industry is all set to receive a positive budget this year, market analysts said.


“This budget is expected to further support the growth of the industry,” AKD Securities analyst Asad Siddiqui told The Express Tribune on Friday.

Even if the government increases federal excise duty (FED) to Rs500 per ton from current Rs400 per ton, it will cause an increase of just Rs5 per 50-kg bag in the market, Siddiqui added.

On the other hand, if the government accepts the industry’s proposal to reduce or completely take back the import duty on used tyres, it will further support the cement industry, he said.

Standard Capital Securities analyst Saad Hashmi said that even if the government increases FED by Rs100 per ton, it would be negligible to the industry that is already in a position to increase prices from Rs5-10 per bag to pass on this impact to the consumers.

“This will be another record year for the cement industry due to higher allocation to the Public Sector Development Programme (PSDP) and the uptick in construction activities led by the private sector,” said Hashmi.

Analysts believe big projects like mass transit projects and dams in Punjab and Khyber-Pakhtunkhwa will increase the cement consumption in the country thus helping this industry.

JS Research on Friday reported that it expects a neutral to positive budget for the cement industry due to expected uplift in PSDP allocation for the next year, and a low probability of hike in FED on cement.

Uplift in PSDP allocation

The National Economic Council (NEC) has approved a 14% year on year hike in fiscal year 2015 PSDP allocation (to Rs1.31trillion) compared to the budgeted amount of Rs1.155 trillion announced last year.

The expected share of the federal government is at Rs525 billion (up 24% year on year) against the realised amount of Rs425 billion this year. Meanwhile, the provincial share is expected to be Rs650 billion, up 6% year on year. The same, if fully utilised, could provide a major boost to cement volumes in fiscal year 2015.

FED unlikely to be raised

Similar to last year, the government in its effort to reduce the fiscal deficit may increase FED on cement by Rs100 per ton to Rs500 per ton, the report said.

The government halted the process of phasing out FED in last year’s budget by keeping it unchanged at Rs400 per ton. With the construction costs already high and government eager to boost the construction activity in the country, we expect FED to remain unchanged this year as well, it added.

Like other analysts, JS Research report also mentioned that an increase in FED of Rs100 per ton will likely be passed on to the final consumer given the strength of the pricing power of the industry.

Published in The Express Tribune, May 31st, 2014.

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