Cement packing price at Rs24 per bag

Cement companies, facing reduced subsidies, are compelled to increase outlay; in this regard another major challenge is linked to a higher packing price. Packing material is imported by the cement companies but as a result of dollar appreciation against the weak rupee, escalating fuel prices due to supply constraints and transportation expenditure, the cost of the packing paper has now risen to a record high of Rs24/bag.
According to industry sources, the sector is forced to meet the challenge of maintaining margins at low prices, given price sensitive nature of the market. In such tough conditions, the rising cost of packing material would make it tougher for firms to earn sustainable revenues, sources indicated.
It would increase the cost of sales, reducing margins where up till now, companies stress they do not transfer the cost of packing material onto the consumers. However, the hike in cost may now force the companies to burden the consumers with the cost of the material as it will make it difficult for the companies to tackle ballooning expenses and low margins.
It is expected that prices will reach somewhere near Rs 400 per 50 kg bag in FY12 after the advent of finance bill, said Gulshan D Ferozepurwalla at SCS trade, adding that there is a marked preference for Lucky Cement (target price Rs 100.7 per share). Among others, we see DG Khan Cement to take advantage of economy of scale in northern zone (above four million tonnes in capacity), while its premier sponsor Nishat Mills is expected to furnish most of its proposed right issue thus wiping out most of its debt during FY12, she added.