CEMENT Industry Snapshot

Cement demand in the country was predominantly driven by domestic consumption in the last five years. Domestic cement consumption registered a CAGR of 9.9% during the period FY06 to FY10. In FY10, cement consumption recorded an impressive double-digit growth of 11.1%. Average cement prices (four metro cities) rose by about 3% on yoy basis in FY10. In the first nine months of FY11, cement demand grew by 5.1% on yoy basis. Average cement prices have dropped by about 2.2% on y-o-y basis during the same period. The industry is expected to register capacity addition of about 65 mn tonnes in the period FY11-12. Surplus capacity is expected to put pressure on cement prices.

Duty Structure CUSTOMS DUTY

OPC / PPC Coal Gypsum Pet Coke

PRE BUDGET
Nil 5% 5% 5%

POST BUDGET
Nil 5% 2.5% 2.5%

IMPACT

EXCISE DUTY (Rs. per tonne)

Retail Price below Rs.190 per 50 kg bag Price above Rs.190 per 50 kg bag Bulk Clinker

PRE BUDGET

POST BUDGET
10% ad-valorem +Rs. 80 10% ad-valorem +Rs. 160 10% ad-valorem 10% ad-valorem +Rs. 200

IMPACT

290 10% ad-valorem 290 or 10% ad-valorem whichever is higher 375

24

_________________________________________________________________________

IMPACT OF UNION BUDGET 2011-12

Budget Proposals
1. Provision of Rs.2,14,000 crore for the infrastructure development in the country which accounts for over 48.5 per cent of the Gross Budgetary Support to plan expenditure. 2. Under Bharat Nirman, Rs.58,000 crore allocated for the rural infrastructure programmes. 3. Scheme of one per cent interest subvention on housing loan is extended upto March 31, 2012 for a loan amount upto Rs.15 lakh (increased from Rs.10 lakh), with the cost of the house not exceeding Rs.25 lakh 4. The corpus of Rural Infrastructure Development Fund (RIDF) XVII has been raised to Rs.18,000 crore in 2011-12 from Rs.16,000 crore in the current year 2010-11. The additional allocation would be dedicated to creation of warehousing facilities. 5. Custom duty on Gypsum and Pet Cock is proposed to be reduced to 2.5 per cent. 6. Hike in excise duty on cement & clinker as per the details given in the duty structure above.

Impact on the industry

The cement industry will remain buoyant given increased impetus of the government on infrastructure development. Infrastructure sector accounts for almost 25% of the total cement consumption in the country. The rationalisation in excise duty through composite rates will hike the cement prices by about Rs.8-8.5 per bag across different regions, which is likely to be passed on to the consumers. However, cement companies operating in the oversupply markets like South will find it difficult to pass on the hike in excise duty to their consumers. Reduction in custom duty of Gypsum and Pet coke will have a very negligible impact on the cost structure of cement companies.

Impact on companies COMPANY NAME

UltraTech

IMPACT

COMMENTS
With the major presence in the deficit Western region, passing on will be relatively easier.

_____________________________________________________________
Professional Risk Opinion

25

COMPANY NAME
ACC

IMPACT

COMMENTS
Pan-India presence. However, major operations in surplus region would make it difficult to pass on the rise in excise duty.

Ambuja

Relatively easier to pass on with the major presence in deficit Western region.

Shree Cement

Marginally positive on cost front. However, passing on the rise in the excise duty will be difficult.

India Cement

The Major presence in the Southern region would make it difficult to pass on the rise in excise duty.

26

_________________________________________________________________________