The Hindu Business Line : Nothing to bind

With no announcement of relief on duties, the cement industry now has to take respite only from the promise of higher infrastructure spending resulting in a possible increase in despatches. The industry’s estimated demand growth for the current fiscal is 9-10 per cent; with pro-infrastructure measures in the Budget, the estimates now look easily attainable. Excess supply doesn’t look like a pressing issue, at least for the current year. The strong trend in de spatches can be expected to continue.

New additions in April totalled 4.75 million tonnes (Expected capacity additions this year: 40-50 million tonnes). All India despatches recorded an 11 per cent growth at 16.5 million tonnes in May.

Further, as there is no support in the form of abatement on MRP for excise levy, prices are going to be a sole play of supply and demand. An all-India price cutback looks a distant possibility . However price corrections in specific regions of excess supply can’t be ruled out (such as those in some regions in the South). Holding the status quo of no countervailing duty (CVD) on coal and pet coke imports means that the industry has to provide space for such costs from internal generations and by striving to achieve better fuel efficiency.

Limited glitter

In a thumbs-up for the gems and jewellery industry, an excise duty of 2 per cent levied on branded jewellery has been lifted in this Budget. First introduced in the 2005-06 Budget, this move was met with vehement opposition.

A removal of excise duty could help on two fronts — one, jewellery makers already work on slim margins and duty cuts would help on the operating margins front.

Two, jewellers would have room to lower prices to stimulate demand. Most branded jewellers lean towards the premium end, whose demand has been severely dented by cutbacks in luxury spends. A listed player who could benefit is Titan Industries, manufacturer of Tanishq brand of jewellery .

However, respite in the form of duty cuts is belied by a doubling of customs duty on gold and silver bars as well as other forms of gold. Players such as Renaissance Jewellery, Flawless Diamonds, Su-raj Diamonds and Jewellery, Vaibhav Gems, Titan Industries and Gitanjali Gems import raw material and finished goods for manufacture and sale. An increase in cost will affect forex revenues, profitability and may even have to be passed on to customers. This is a negative for an industry already reeling under rising gold prices and domestic and global demand downturn.

Not much room to manoeuvre

Automobile majors such as Mahindra and Mahindra, Tata Motors, Maruti Suzuki, General Motors India, Toyota Kirloskar Motors and Force Motors will be the key ‘beneficiaries’ of the excise duty revision on large cars and utility vehicles proposed by the Finance Minister. According to the Budget proposal, a specific component on excise duty applicable to the excise duty on large cars and utility vehicles with an engine capacity of 2000cc or more has been reduced from Rs 20,000 to Rs 15,000.

The fixed component of duty remains unchanged at 20 per cent. Luxury carmakers such as BMW India, SkodaAuto India, Honda Siel Cars, Mercedes-Benz India, Porsche and Audi may also stand to gain from the excise duty cut on large cars.

With more than 75 per cent of its sales volumes coming from utility vehicles (such as Scorpio, Bolero and Xylo), Mahindra and Mahindra seems to be the biggest beneficiary of the excise duty cut. Sales of utility vehicles are not too significant for other Indian car manufacturers. However, the proposed reduction can lessen the selling price of vehicles by about 0.3-0.8 per cent for these companies. Since this is measly relief to the auto makers, it remains to be seen if this would actually be passed on to customers.

Technology overdrive

Educomp Solutions, NIIT and Everonn Systems may be the key beneficiaries of the Budget proposal to provide greater allocation to the ‘Mission in Education through IT’ scheme. All the three companies, especially Educomp and NIIT, have working relationships with several State governments in providing IT-enabled education. About Rs 900 crore has been allocated for this scheme. The budget allocates promised to an allocation for the issue of Rs 120 crore for issuing unique identification numbers through the Unique Identification Authority of India over the next 12-18 months. Bartronics a key player in this segment and having done pilot studies on this project earlier may be well-positioned to take advantage of this proposal.

BL RESEARCH BUREAU