Improved demand to help cement sector

Hike in excise duty on cement products is negative, but can be overwhelmed by improved demand from greater thrust on infrastructure and rural sector.

Budget Provisions

Corporate tax surcharge down from 10% to 7.5%
To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house R&D enhanced from 150% to 200%.
New income tax slabs will bring relief to the middle class. The individual with the income of Rs 1.6 lakh will pay Nil tax, above Rs 1.6 lakh up to Rs 5 lakh will pay 10%, from Rs 5 lakh to Rs 8 lakh will pay 20% and above Rs 8 lakh, the rate will be 30%.
Minimum Alternate Tax hiked from 15% to 18%.
Standard excise rate up from 8% to 10%
Goods and services tax to be introduced in 2011
Rs 66100 crore provided for Rural Development.
Allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme stepped up to Rs 40100 crore in 2010-11.
An amount of Rs 48,000 crore allocated for rural infrastructure programmes under Bharat Nirman.
Unit cost under Indira Awas Yojana increased to Rs 45,000 in the plain areas and to Rs 48,500 in the hilly areas. Allocation for this scheme increased to Rs 10000 crore.
Allocation for urban development increased by more than 75% from Rs.3,060 crore to Rs.5,400 crore in 2010-11.
Allocation for Housing and Urban Poverty Alleviation raised from Rs 850 crore to Rs 1000 crore in 2010-11.
Rs 1270 crore allocated for Rajiv Awas Yojana as compared to Rs 150 crore last year.

Duty Structure

The excise duty on cement products, with fly ash content of atleast 25% by weight was 8% hitherto, which has been increased to 10% in Union Budget 2010-11. There has been corresponding increase in the excise duty on cement (which is a key input) as follows:

Mini cement plant: Cement

Present rate

Proposed rate

Cleared in packaged form: -

(i) of retail sale price not exceeding Rs. 190 per 50 kg bag or of per tonne equivalent retail sale price not exceeding Rs. 3800;

(ii) of retail sale price exceeding Rs. 190 per 50 kg bag or of per tonne equivalent retail sale price exceeding Rs. 3800;

Cleared other than in packaged form

Rs.145 per tonne

Rs. 250 per tonne

Rs. 170 per tonne

Rs 185 per tonne

Rs.315 per tonne

Rs.215 per tonne

Other than mini cement plant: Cement			Present rate		Proposed rate
1. 2.	Cleared in packaged form,- (i) of retail sale price not exceeding Rs. 190 per 50 kg bag or of per tonne equivalent retail sale price not exceeding Rs. 3800; (ii) of retail sale price exceeding Rs. 190 per 50 kg bag of per tonne equivalent retail sale price exceeding Rs. 3800 Cleared other than in packaged form	Rs. 230 per tonne 8% of retail sale price 8% or Rs. 230 per tonne, whichever is higher		Rs.290 per tonne 10% of retail sale price 10% or Rs.290 per tonne whichever is higher
Cement clinker			Rs.300 per tonne		Rs. 375 per tonne

Industry Expectation

The industry was expecting rise in excise duty and implementation of GST.

Budget Impact

Rise in rural development and spending will help the cement products manufacturer see the demand increasing in coming days.

Stock to watch

Hyderabad Industries, Everest Industries, Visaka Industries, Ramco Industries.

Outlook

The cement product industry especially the asbestos cement manufacturers cheer on the impetus given to rural infrastructure especially on the thrust given on rural housing by the government, which is a positive sign. The government focuses on the rural and infrastructure growth is big boost for this industry.

Acceleration in urban housing and construction and other infrastructure related activity will revive the demand for the various cement products, which is experiencing excellent demand from the rural markets. However, overall, the budget looks neutral for the industry.

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