Cement Sector

·         Existing excise duty rates to be replaced with ad valorem duty

·         Customs duty on two critical raw materials of this industry viz. petcoke and gypsum is proposed to be reduced to 2.5 per cent from 5 per cent

 

While the FM in his budget speech said that he is bringing a relief to the cement industry through measures such as existing duty being replaced with ad valorem duty and reduction in custom duty of two critical raw materials to 2.5 per cent from 5 per cent, it has hardly brought cheers to the industry. And there are reasons for the same.

 

First and foremost though the budget has reduced custom duty on petcoke and gypsum, it should be noted that it wouldn’t have much impact as Gypsum accounts for just 2 per cent of the total input cost, while petcoke accounts for 10-12 per cent of total input cost. But, there are only two companies, Shree Cement and UltraTech who use pet coke and hence they would be benefited but not the others.

 

Secondly though the current excise duty rates would be replaced with the ad valorem duty, it doesn’t change much, in fact with the new structure the overall cost only goes up. Also, the other thing one should note here is that there is still no clarity as to how this ad valorem duty would be levied, whether it would be on the retail price or ex-factory price. The clarification is yet to come. However, even if we assume that it would be calculated on an ex-factory cost, the cost is still higher for cement manufacturers and considering the current scenario of the industry, it looks difficult for the companies to pass on this increased cost to the end user. If that doesn’t happen then it would hurt their margins further. Hence we believe the budget announcements are negative for the sector.