KARACHI - The 35 per cent inland freight subsidy agreed by the government for cement sector will reduce the internal transportation cost of the cement companies to approximately Rs42-43 per bag in next three months, cement sector analyst told The Nation on Monday. The cement sector is said to be the major beneficiary of the announced subsidy, which could rationalize the cost of the cement industry incurred at the Northern plants to reach shipments to the seaport sharply. In addition to that, it would bolster the exports across the targeted markets during April-June 2010. According to research analyst, this decision would have positive impact for the cement companies in terms of earnings, sales volumes and margins. It would further bode well for the sectors future if the government announces extension in the duration of the said subsidy after June this year. However, continued rise in energy prices, sharper than expected decline in export volumes and prices may put the sector on the downside risk. Moreover, the generation of better volumes by the companies would strengthen Pakistans price competitiveness over other regional manufacturers, which in turn can provide an up tick to local cement prices as well, analyst said. Majority of the cement units are located in the Northern zone having a sufficient share in the local market. The Southern zone despite situated near the port, still hold the small share of production with a few units being operated by the cement manufacturers. As compared to Southern units, Northern units bear additional cost of inland transportation to the ports. It may be mentioned that the Government of Pakistan on Friday finally implemented the subsidy announced earlier in the Trade Policy 2009-10 on inland transportation of goods for exports. Cement, Light Engineering, Leather Garments, Furniture, Soda Ash, Hydrogen Peroxide, Caustic Soda and Sanitary companies would be the beneficiaries of the announced subsidy. These sectors would be subsidized at 50 per cent. According to the terms and conditions attached with the policy document, exports routed through Sea would be eligible, shipments made between the issuance of the Public Notice (March 26, 2010) and June 30, 2010 would be eligible for the subsidy, products originating a minimum 100km from the seaport would qualify to get the said subsidy. As per the Earning per Share impact of this subsidy on cement companies calculated by JS Research for the month of April and June, the share price of Lucky cement would stand at Rs0.15, DG Khan Cement share to reach at Rs0.13, Lafarge Cement at Rs0.3 and the EPS of the Maple Leaf Cement would translate into Rs0.19 in the next three months. The other brokerage house estimates Lucky Cement EPS to climb over at 13-27 per cent in FY10. While the best case for Luckys margins, like peers, remains linked to return of consensus pricing, it is Luckys superior-to-peer ability to sustain/improve margins even otherwise which drives our liking on the stock, it said. Lucky has further consolidated its leadership (+4ppt to 32% share) of the export market (US$10/ton higher than domestic margins), trumping peers on location advantage and lowest-in-peers freight cost. These advantages should hold going forward, enabling Lucky to leverage off rising African and Iraqi demand while sustaining premium margins.