Budget 2012: South Indian cement companies to gain

The Union Budget mostly did little to boost business sentiment, but the finance minister’s Budget speech on Friday had just a couple of goodies for cement companies.

While the industry was expecting a reduction in excise duty, Mukherjee announced an increase in excise duty from 10 percent to 12 percent, while reducing the fixed component of the duty from Rs 160 to Rs 120 per tonne. While this is expected to increase the effective excise duty by 1-1.5 percent for most cement companies, it will have a neutral impact on the sector as the excise duty hike is expected to be passed on to consumers, says Edelweiss.

However, the proposal to exempt non-coking coal from basic customs duty (earlier at 5 percent) will have a positive impact of 1-1.5 percent on the cement industry’s operating profit, according to Crisil. At the moment, the industry gets close to one-fourth of its total coal requirement through imported coal.

Overall, at the company level, the net impact will vary based on the dependence on imported coal.

Crisil says that the impact will be positive for south Indian-companies like India Cements and Dalmia Cements as their proportion of coal imports is higher.