KARACHI, May 16: Various government functionaries have been falling over one another in trying to unravel the budget before it is announced. There has been talk of government planning to rationalize public limited companies’ tax rates; capital market tax amendments; corporate tax cuts; reduction in import duties; introduction of some rebate-relief for textile exporters and the incontrovertible measure of levying some kind of tax on the property business and so on.

The latest in the series is the statement coming from chairman CBR, which says that there would be no new taxes on the cement industry. That comes as another feeler about the upcoming budget 2005-06. That and a previous report that huge increase of Rs50 billion or so, would be made in allocation for Public Sector Development Programme (PSDP) up from Rs202 in the budget 2004-05 to Rs252 billion in the upcoming budget appear to be positive for the cement industry.

“But it has to be seen how much of that is true”, says Tanvir Abid, head of Research at Live Securities. In his report of May 11, the analyst notes: “The outlook for cement demand going forward represents an extremely upbeat picture”, adding: “Given that the capacity additions by the cement manufacturers will be gradual, excess supply concerns are mitigated, at least in the intermediary term”. He observes that reduction in Central Excise Duty (CED) is the lingering demand of the sector. In the budget 2003-04, Government had reduced CED by 25 per cent from Rs1,000 per ton to Rs750 per ton and there was an understanding that CED would be phased out in four years. “But last year, the government did not make any reduction in CED, which is why the industry is concerned more about the CED this year”, the analyst observed.

Given the government’s commitment to building up of industrial infrastructure and faster progress in the housing sector, some analysts do not rule out a positive change in the government’s outlook on the issue.

Cement sector analyst at Global Securities, Fariha Tayyeb, has produced a consolidated cement sector 3QFY05 result analysis. The analyst notes: “July-March ’05 consolidated results for cement manufacturers generally show continuity in profitability trend as was depicted during the first half of the current fiscal year”. In a sample of five key manufacturers — Cherat, DG Khan, Fauji, Lucky and Maple Leaf - the average retention prices for those manufactures stood at Rs2,983 per ton, marginally higher than the previous quarter; average manufacturing costs were 5 per cent higher at Rs1,772 per ton and average EBITDA margins declined by 3 per cent on a quarter-on-quarter basis to stand at Rs1,143 per ton.

The analyst stated that so far during FY05, manufacturers had been adversely impacted by higher production costs (largely due to an increase in international coal prices). On the other hand, there had also been a continuous increase in retention prices. “Going forward, we expect production costs shall continue to increase, while there would also be a simultaneous rise in retention prices so that manufacturers are able to maintain their margin at existing levels”, stated the analyst.