The Railways board on Thursday had recommended a hike in fares but Railway Minister Sadananda Gowda was expected to meet Prime Minister Narendra Modi before taking a final call.
Also Read: Expect message on retrospective tax in Budget: Sitharaman
On June 14, Prime Minister Narendra Modi had warned of "tough decisions" over the next couple of years to improve the country's financial health. While addressing the meeting of BJP workers in Goa, the PM had said that those measures may not go down well with some sections. It seems the government has now started rolling some of those measures sooner than expected.
Cash-strapped Railways had announced hike on May 16 in both passenger fares and freight rates by 14.2 percent and 6.5 percent, respectively, from May 20. However, the decision was rolled back within hours leaving the job to the new government.
The UPA government had left passenger fares unchanged in the Interim Railway Budget in February ahead of the general elections.
Today's decision is likely to give an additional revenue of around Rs 8000 crore to the national transporter, which is losing Rs 30 crore a day. The cross-subsidy on passenger fares has touched Rs 26,000 crore. But the fare hike is likley to bring some respite to the financial heath of Railways.
Even Commerce Minister Nirmala Sitharaman in an interview to CNBC-TV18 had said that Railways need money in a big way, whether it is for "modernisation, coach building, safety of passengers, safety of lines or freight."
Reacting to the fare hike, former chief minister of Bihar Nitish Kumar said the Railway Minister should have presented the hike in the Budget as increasing fare just days before it sets up a wrong precedent.
Industry reaction
Sanjay Ladiwala of Cement Association feels the freight rate hike will impact cement companies' bottomline.
He said that with the demand being low and the monsoon coming, it may not be possible to pass on the hike to consumers. Thus, prices are not likely to support the manufacturers as they will have to absorb it, which doesn't go too well for the industry.
"I think the industry will have to gather all facts and see what the implications are and accordingly may request the government for a review of the fares. But on the whole, the hikes don't look good," he told CNBC-TV18.
SP Tulisan feels the rail fare hike is positive in the longer term as the sector has not seen any new investments coming in, which was a deterrent to overall growth of the industry. He sees the rail stocks reacting positively on the back of this hike, however, expects cement, steel and power stocks to have a negative impact.
HM Bangur of Shree Cements said though the decision "means a cost-push, but it is very natural and was long overdue". He sees an increase of Rs 8-10 per cement bag post the fare hikes, which he thinks the company will have to absorb for few months before passing it on the consumers.
"The government means what PM Modi had said that he is going to administer some bitter medicine for the long-term health of the economy and I think the Railway Minister is doing just that," said senior journalist and author Vivian Fernandes.
He expects the Rail Minister to follow up the fare hike by announcing credible reform measures like competition, capacity expansion and dedicated freight corridors. "Railways must function as the low-cost freight carrier for the economy," feels Fernandes.
Siddhartha Sanyal, economist at Barclays, said that if a very-short term view is taken then the decision definitely becomes inflationary, "but some of these things are not totally unexpected".
Shree Cements stock price
On June 16, 2014, Shree Cements closed at Rs 7209.45, down Rs 14.65, or 0.2 percent. The 52-week high of the share was Rs 7981.50 and the 52-week low was Rs 3412.65.
The company's trailing 12-month (TTM) EPS was at Rs 228.07 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 31.61. The latest book value of the company is Rs 1103.32 per share. At current value, the price-to-book value of the company is 6.53.
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