Cement price hiked by Rs. 30 per bag

Tuesday, 6 March 2018 00:00 - - {{hitsCtrl.values.hits}}

Consumer Affairs Authority approves hike in 50kg bag after industry seeks Rs. 60 increase
Consumer group slams raise, calls on President to reverse price raise

The Consumer Affairs Authority (CAA) has given approval to increase the price of a 50kg bag of cement by Rs.30, in a move that has been slammed by consumer activists.

Cement prices are regulated by the CAA as it is listed as an essential item. Other than cement, the CAA also decides the price of LP Gas. Approval to increase prices was made by the CAA recently, sources within the CAA told media.

The National Movement for Consumer Rights Protection immediately slammed the move and appealed to President Maithripala Sirisena to reverse it. The organisation also criticised Industry and Commerce Minister Rishad Bathiudeen for allowing the increase to be approved, as the CAA is under his ministry.

“This is a move made by a few cement companies to increase their profits. This increase will make it harder for average Sri Lankans to build houses, as they already have to deal with skyrocketing costs,” the organisation said in a statement released to media yesterday (5 March).

A 50kg bag of cement is currently Rs.930 in the market. The cement industry has several strong players in the local market, with intensified competition leading to a stagnant topline, according to market research companies.

Daily FT learns that the cement manufacturers have originally requested for a hike of Rs. 60 per kilo given the increases in cost.

Broking firms FC Capital Research yesterday downgraded public listed Tokyo Cement to “Hold” from “Strong buy” despite the increase in price of a 50kg bag of cement.

The downgrade was primarily on account of apparent shrink in market share due to intensified competition leading to a stagnant topline despite the modest 5%YoY growth registered in cement industry during 2017.

Further, with the distribution cost continuing on its increasing trend to register a 12%YoY growth for 9MFY18 adversely impacting the earnings First Capital Research has slashed TKYO revenue forecast by almost -15% for FY18E and -24% for FY19E while incorporating a more steady moderate growth in top line spreading to FY20E and FY21E. However, we expect TKYO to maintain its margins at 25% supported by enhanced capacity levels coupled with cost savings on energy, thus upholding the earnings at c.LKR 3.4Bn in FY19E. Amidst the revenue downgrade, TKYO earnings expectations have reduced by LKR 577Mn and LKR 1.0Bn for FY18E and FY19E generating a decent c.+4% earnings growth in FY19E. As a result, First Capital Research revised its fair value for TKYO.N for FY19E downwards to LKR 64.0 (previous LKR 94.0) while TKYO.X is revised to LKR 54.4 (previous LKR 80.0) providing an overall return of 12% and 14% respectively thus downgrading to HOLD on both TKYO.N/X.