Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
Industry & Economy
Cement: An excise load
NEW DELHI, Feb. 28
THE housing industry will bear the brunt of soaring cement prices, despite the Finance Minister trying to please the tax-payers by continuing with the existing tax rebate of Rs 1,50,000 on housing.
The Finance Minister, has announced an increase in the excise duty on cement from Rs 350 per tonne to Rs 400. This would translate into a hike of Rs 2.50 per kg of cement.
Apart from this, the excise duty on cement clinkers has also been increased from Rs 200 to Rs 250 per tonne, while the duty on cement made by mini-plants has been raised from Rs 200 to Rs 250 per tonne.
The excise duty on cement cleared in bulk has also been hiked from Rs 332 per tonne to Rs 382.
This increase in excise duties in the cement sector has happened after a span of almost seven year
Analysis by S. Vaidya Nathan
For the likes of ACC, Gujarat Ambuja Cements, Larsen & Toubro, Grasim Industries and Madras Cements among others, the budget provides kickers on demand-side. To some extent, the glad tidings on this score would be neutralised by the spike in excise duty.
Be it housing or roads, the two key drivers of demand in the last 24 months, there are adequate incentives thrown in to keep up volume growth. Industry demand has been in the vicinity of 10 per cent during this period. This appears set to continue. The demand side drivers in the budget are:
If these factors continue to spur demand as they have in the last two years, the demand - supply imbalance could get corrected and prove beneficial for the industry. This is important as in the last two years the good volume growth has not translated into healthy bottomline growth for cement companies due to pricing pressures. Two more years of growth in demand of around 10 per cent per annum could place better pricing power in the hands of cement companies.
But the hike in excise duty by Rs 50 per tonne (an increase of 14 per cent) may lead to some stress on profitability in the near term. Given the pricing pressures, cement companies may not at all times be able to pass on this enhanced excise impost. At Rs 2.5 per 50 kg bag, the quantum may appear small.
But in a market saddled with over-supply and producer difficulty in pushing through and sustaining price hikes, this does somewhat dilute the otherwise positive vibes that the Finance Minister had for the cement industry.
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2003, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line