Lahore - Budget FY14 was a mixed bag for the cement industry where broad positives for the sector were countered by significant negatives.
According to industry experts, the government has changed the mechanism for determining federal excise duty (FED) wherein the new mechanism results in an adverse Rs6.5 per bag impact on cement price (likely to be passed on). On the positive side, the government has allocated Rs525 billion for PSDP (FY14E revised: Rs425 billion) while the mark-up on export refinance facility (EFF) has also been reduced to 7.5% from previous 9.4%.
In this regard, clarity has emerged pertaining to the GIDC increase where as per industry sources, while the maximum limit of cess has been increased, it has yet to be implemented. That said, all indications point towards an imminent increase in the cess rate to its maximum limit potentially by July 2014, when the likely revision of gas prices is to take place.  Calculation suggests an increase in manufacturing cost of Rs5.3/bag and Rs4.9/bag for DGKC and LUCK, respectively owing to the GIDC increase. Given heavy infrastructure spending likely in FY15 and beyond on account of mega projects such as the Karachi-Lahore motorway and the Dasu dam, experts portend local cement offtake to depict a 3-year CAGR of 7%.