Impact Of GST Rate Cut On Cement Sector — Read Yes Securities' Thematic View

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Yes Securities Report

Theme I

The TACC (total average construction cost) for a 500 sq. ft. IHB (including tier 1, tier 2, and Rural) post-GST rate cut is likely to fetch ~Rs 17,400 in construction cost savings for consumers.

The major construction costs currently taxed under the 28% GST slab are Cement (~12% of TACC), Paint (~12% of TACC), and Sanitary Fittings (~6% of TACC), which together are likely to provide ~Rs 35/sq. ft. of cost relief to consumers if the GST rate is reduced to 18%.

The question, however, is whether the consumer will be the real beneficiary of these savings or if there will be any shift.

Consumer behavior:

No over-purchasing: In construction, cement is a basic and essential raw material, followed by paint and sanitary fittings. A house builder will purchase only the required quantity (e.g., ~225 bags for 500 sq. ft.), not more, even if GST is reduced. Cement is a commodity; a lower GST rate will not lead to consumers buying excess volumes.

No expansion of planned layout:

For instance, if someone has a planned layout of 1,200 sq. ft., they will not extend the area just because of a GST rate cut.

“Hence we believe, whether it is cement, paint, or sanitary fittings, the consumer will ultimately save the money rather than spend it on additional or unplanned construction.”

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