labels: cement, industry - general, economy - general, railways
Rail Budget: Will cement companies gain?news
24 February 2006

This year's Rail Budget does not propose any freight rate hike. In fact, it has doled out discounts for peak and non-peak seasons. How this measure will impact cement companies? Lalu is on a roll. After improving the physical and financial condition of the railways, Yadav has presented a budget, which is likely bring cheers from many quarters.

Apart from reducing the passenger fares, a move obviously directed at the UPA's much touted thrust on bringing relief to the common man, he has also resisted the temptation for going in for a freight hike.

Lalu's game plan:
In fact, there has been no freight hike across the board. Further, Lalu's Railway Budget 2006 is full of other such measures, which are meant to simplify the freight pricing policy and to lure away road traffic to railway traffic. For example, 4,000 commodities, which were earlier pressed under 80 heads, have been compressed under 28 heads. He has proposed a dynamic freight pricing policy, depending upon the season. That is, there will be 20 per cent freight discount for peak season for incremental traffic and 30 per cent discount for non-peak season.

As a matter of fact, the cost of carriage for one net km has been brought down from 61 paise / tonne to 51 paise / tonne. Again, it has provided for loyalty discounts to sectors like cement, iron, cement and oil. The railway ministry has done this, at a time when it has taken a decision to merge the DA of its employees with their salaries. Besides reflecting the railways' financial health, the policy measures also speak volumes about its determination to attract more and more traffic.

Impact on cement companies:
The announcements made on the freight rate front has made the cement sector, already hit by the Supreme Court's judgement on overloading of trucks, more than happy.

"It is a good budget for Shree Cement and it will give a boost to Shree Cement's logistic cost deduction because in the last ten months of 2005-2206, we were not loading anything on rail because at that time road was cheaper. But after restriction on overloading, we started loading in January. So our base loading is zero. We would be able to get 20 per cent and 30 per cent discount in freight on peak and non-peak season," says executive director of Shree Cements M K Singhi.

Real gains:
No doubt, the profit margins of cement companies are expected to go up following freight savings. But how significant will these gains be? If analysts are to be believed, the gains will not be huge. They say that the quantum of profit for cement companies through freight savings will not be material for their stock prices as it will affect their profits by less than half-a-per cent to 1 per cent.

In fact, companies like Gateway Distriparks stand to gain more than cement companies from the concessions made by the railway minister on the freight rates front.

 search domain-b
Rail Budget: Will cement companies gain?