Cement: Bad news for companies

What the Budget does

• From a differential excise duty levied last year, the budget this year proposed a flat rate Rs 400 per MT bulk cement or 14% ad valorem, whichever is higher and cement clinkers excise duty at Rs 450 per MT.
• A slew of incentives to be doled out for the housing sector particularly in the rural areas.  The interest rate on housing loan has been reduced. 
• Allocation for NHDP enhanced to almost Rs 13,000 crore in FY09.  Special attention being paid to SARDP-NE; programme devised for the North Eastern region, apart from the ongoing completion work on Golden Quadrilateral and East West Corridor.Coal regulator to be appointed.
• Parent company allowed to set-off the dividend received from its subsidiary company against dividend distributed by itself.

Impact on sector

• The government has increased budgetary allocation for roads under NHDP. This coupled with government's initiatives on the infrastructure and housing sector fronts would continue to remain the key drivers.
• Increased infrastructure spending has been a key focus area over the last five years. One would only expect the execution to be monitored closely. Thus from a near to medium term perspective, till the time capacities come on stream, good times continue to lie ahead for cement manufacturers.
• Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them.

Impact on companies

• The excise duty on bulk cement is proposed at Rs 400 per MT bulk cement or 14% ad valorem, which ever is higher. 
• The impact of hike in excise duty will not be so prominent in medium term on account of pricing power lying with the producers.
• With 14% ad valorem duty, incidence of tax increases. Further, once new capacities come onstream, producers may not be able to pass on the hike and thus might be forced to absorb the impact, which in turn would negatively impact profitability. 
• Cement major such as ACC, Ultratech and Grasim will have to bear the brunt of change in excise duty structure.
• Excise duty on cement clinker ahs been raised by Rs 100 per MT to Rs 450 per MT. The move will impact only those who purchase clinker. However, the major cement manufacturers', infact most of the cement manufacturers have set up a grinding unit so they don't have to source clinker. Hence the impact is neutral.
  
  Also read: How Budget affects your stocks

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