The proposed 5.79 per cent hike in rail freight charges is expected to have a negative impact on the margins of the cement industry besides, increasing the cost by up to Rs 4 per bag, according to research firm India Ratings.

“The proposed increase in rail freight charges as per the railway budget may have a negative impact on the margins of the cement industry. In the event of cement manufacturers are unable to pass on the rail freight cost hike, the operating margins may reduce by 75 bps to 100 bps (0.75-1 per cent),” India Ratings said in a statement.

“...the railway freight hike may potentially increase the cement price by Rs two to Rs four per bag,” it said.

Observing that cement majors in South India would be “affected” due to the prevailing unfavourable demand-supply solution, those based out of other parts of India would be able to pass on a significant portion of their cost increase.

About 60 per cent of a freight expense of cement major, is related to rail freight, it said.

(This article was published on February 27, 2013)
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