Budget Provisions
Change in Excise duty
The excise duty structure on cement manufactured and cleared in packaged form is being rationalized. The graded RSP slabs for the purpose of charging of duty on cement manufactured and cleared in packaged form are being done away with. The rates on cement and cement clinkers are also being revised as under:
| Excise duty | ||
| For Major Plants | Present Rate | Proposed Rate |
| Cleared in package form, where the RSP is not exceeding Rs 190 per 50 kg bag or Rs 3800 per tonne | 10% ad valorem plus Rs 80 per tonne | 12% ad valorem plus Rs 120 per tonne |
| Cleared in package form, where the RSP exceeds Rs 190 per 50 kg bag or Rs 3800 per tonne | 10% ad valorem plus Rs 160 per tonne | 12% ad valorem plus Rs 120 per tonne |
| Cleared other than in packaged form | 10% ad valorem | 12% ad valorem |
| For Mini Cement Plants | ||
| For Mini Cement Plants | Present Rate | Proposed Rate |
| Cleared in package form, where the RSP is not exceeding Rs 190 per 50 kg bag or Rs 3800 per tonne | 10% ad valorem | 6% ad valorem |
| Cleared in package form, where the RSP exceeds Rs 190 per 50 kg bag or Rs 3800 per tonne | 10% ad valorem plus Rs 30 per tonne | 6% ad valorem |
| Cleared other than in packaged form | 10% ad valorem | 12% ad valorem |
| For All Cement Plants | ||
| Cement Clinker | 10% ad valorem + 200 per tonne | 12% ad valorem |
| RSP = Retail Sale Price | ||
Cement is also being notified under section 4A, that is, retail sale price (RSP) based assessment with an abatement of 30% from RSP.
Full exemption on customs duty on coal. Proposal for full exemption from basic customs duty and a concessional CVD of 1 per cent to steam coal till 31st March, 2014.
Investment link deduction of capital expenditure for certain businesses proposed to be provided at the enhanced rate of 150 per cent.
Rs 20,000 crore to be spent on rural infrastructure development, including Rs 5,000 crore for creating warehousing facilities.
NRHM allocation hiked to Rs 20820 crore.
Govt doubles allocation for tax-free bonds to Rs 60,000 crore for financing infrastructure projects in 2012/13.
Infrastructure investment in 12th Plan to go up to Rs 50 lakh crore; half of it to come from private sector.
Tax free bonds of Rs 10,000 crore for IRFC.
FY13 tax free bonds of Rs 10,000 crore for NHAI.
DTC Implementation deferred
GST to become operational by August 2012
Budget Impact
The Union Budget 2011-12 has rationalized and effectively reduced the excise duty on cement. There is general effective reduction in excise duty on cement in general, and substantial reduction for mini cement plants in particular.
On a Retail Selling Price (RSP) of Rs 250 per 50 kg bag of cement in package form, the excise duty was Rs 660 per tonne earlier for large plants, which now eases to Rs 540 per tonne, factoring in the abatement on Retail Selling Price and the hike in excise duty. The excise duty incidence on mini cement plant would come down from Rs 530 to Rs 210 per tonne, on RSP of Rs 250 per 50 kg bag.
The proposal to exempt imported non-coking coal from basic customs duty (earlier at 5%) is expected to have a positive impact of 1-1.5% on the cement industry's operating profit. Currently, the industry meets close to one-fourth of its total coal requirement through imported coal. At the company level, the net impact will vary based on the company's dependence on imported coal. For instance, it will be a positive for south-based companies like India Cements and Dalmia Cements as their proportion of coal imports is higher.
Increased spending on Infrastructure is a positive.
Scrips to Watch
ACC, Ambuja Cement, Ultra Tech Cement Company, Shree Cement, Sagar cement, KCP Cement
Outlook
On an overall basis, the Union Budget 2011-12 is positive for cement sector in general, and the benefit is more for mini cement plants. Cement demand growth has lagged GDP growth in past two years due to slowdown in real estate sector and lack of order inflows in infrastructure sector. Lower-than-expected demand coupled with incremental supplies have also resulted in declining capacity utilizations for the companies. However, prices have witnessed sharp and intermittent hikes and declines during FY12. Sector has also witnessed continued cost pressures in terms of higher power and fuel and freight costs. We believe that costs may continue to remain high going forward also.
The industry believes the core sector cement industry sustain a healthy growth of 11% that is essential to achieve the planned GDP growth of 9% during the XII Plan period. We expect Union Budget 2012-13 to be positive for cement sector in terms of higher allocations for infrastructure sector which is the key demand driver for cement growth.
