As the possibility of a hike in railway freight rates descends on the market, these counters could see more sellers than buyers. The possibility of a 10 to 15 per cent hike in freight rates cannot be ruled out.

Coal, cement and steel would be among the worst hit sectors. Even if some sops follow in the budget for these sectors, it would be offset by a freight rate hike.

Last year's 12 per cent hike in freight rates has eroded the bottomlines of steel and cement manufacturers. The freight rate was raised by seven per cent, 10 per cent and 12 per cent in the railway budgets for 1995-96, 1996-97 and 1997-98 -- a total of 29 per cent in just three years.

For fiscal 1996-97, SAIL's net profit plunged by 60 per cent while TataSteel's dropped by 17 per cent. For 1997-98, despite a seven per cent increase in sales, SAIL is likely to announce a drop in net profit. This is mainly on account of an increase in input costs like coal, railway freight and power which cost the company over Rs 700 crore.

Out of this Rs 700 crore, Rs 300 crore alone is on account of freight rate hike. If another dose of 10-15 per cent hike comes through it would mean an estimated additional burden of Rs 250-350 crore on SAIL.

SAIL moves a significant portion of its material by rail, both raw material (including coal) and finished goods. The hike in freight cost, however, will not significantly impact Tisco's bottomline which transports most of its products by road. The extra burden for Tisco could be in the region of Rs 60-70 crore.

In the case of cement, although 60 per cent of the despatches are made by road, cement manufacturers rely on railways for other material movement. A hike in the freight rates will result in higher freight costs for bothclinker and cement. Second, freight costs of coal (a crucial input) will go up, too. Since freight accounts for roughly 28 per cent of the total variable costs of cement manufacturing, the effect on the bottomlines of companies in this sector will be significant. A 10-15 per cent hike in freight rate would mean an additional burden of about Rs 580-850 crore on the cement industry alone. This would increase the price of a 50 kg cement bag by Rs 5.50 to Rs 7.

To what extent the industry can absorb the higher cost would depend on the demand-supply position. However, with cement manufacturers recently hiking per bag prices by Rs 15-20, it is unlikely that they would be in a position to pass the increase in the cost to customers fully.

Although ACC has the advantage of multi-location plants, its railway freight bill can go up by Rs 32-45 crore after the hike. The market expects ACC to report a 61 per cent drop in the net profit for 1997-98. ACC's net profit for the first half of 1997-98 plummeted by 61.47 percent to Rs 21.21 crore.

Similarly in the case of Birla Corp, the impact of an increase in the freight rate will be an estimated Rs 12-17 crore. Cement manufacturers based in the south will not be hit much as they rely mainly on road transport and distances to be covered are also small.