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Cement sector – detailed Budget expectations
At present, excise duty of 10% is applicable on the retail selling price (RSP) without any
abatement and a specific excise duty (Rs290/tonne) is applicable in certain cases. The
industry’s demands are: 1) rationalization of excise rates; 2) abatement in excise duty
charged on cement based on the RSP.
In its pre-budget memorandum to the finance minister, the Cement Manufacturers'
Association (CMA) has sought a uniform rate of excise duty for cement. CMA has also
suggested that import duties on coal, pet coke, gypsum and other inputs be brought down to
zero. These inputs currently attract a 5% import duty, while there is no duty on cement
imports.
Any abatement on the RSP on cement would reduce the incidence of excise levy and be
positive for the sector. Also, there would be demand-side impetus for the housing and
infrastructure sectors.
FMCG – detailed Budget expectations
All categories
Any increase in the excise duty on FMCG products is typically passed on by companies, but in an
environment of general inflation, where companies have been taking price hikes to neutralise raw
material costs, a further excise-induced price increase could have negative impact on volumes.
Cigarettes
Given the sharp increase in excise duty on filter segments in the 2010 Budget and negative
volume growth for the industry in FY11 (year-end March), we expect no sharp excise duty hike in
the forthcoming Budget.
The Ministry of Commerce is considering two changes to the FDI policy on tobacco:
1) exclusion of tobacco from the list of products where FDI is allowed for the wholesale trading
route; and
2) putting tobacco imports in the restricted list instead of open general license.
This would prevent foreign brands from accessing the Indian market, through the trading/import
route, and make Indian cigarettes more competitive.
We expect the current specific excise duty regime to continue, but any move to change the scope
of excise duty levy from specific to an ad-valorem basis has the following implications:
1) It would create an opportunity for cigarette companies to compete with bidis by launching
cigarettes at lower price points and, thus, improve penetration of white cigarettes in the
overall tobacco basket in the long term.
2) However, in the premium-end filter segment, where companies have pricing power, there
could be a cascading effect of price hikes, impacting net-of-excise revenue growth of the
tobacco companies. This would be negative for margins and profitability in the medium term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement sector – detailed Budget expectations
At present, excise duty of 10% is applicable on the retail selling price (RSP) without any
abatement and a specific excise duty (Rs290/tonne) is applicable in certain cases. The
industry’s demands are: 1) rationalization of excise rates; 2) abatement in excise duty
charged on cement based on the RSP.
In its pre-budget memorandum to the finance minister, the Cement Manufacturers'
Association (CMA) has sought a uniform rate of excise duty for cement. CMA has also
suggested that import duties on coal, pet coke, gypsum and other inputs be brought down to
zero. These inputs currently attract a 5% import duty, while there is no duty on cement
imports.
Any abatement on the RSP on cement would reduce the incidence of excise levy and be
positive for the sector. Also, there would be demand-side impetus for the housing and
infrastructure sectors.
FMCG – detailed Budget expectations
All categories
Any increase in the excise duty on FMCG products is typically passed on by companies, but in an
environment of general inflation, where companies have been taking price hikes to neutralise raw
material costs, a further excise-induced price increase could have negative impact on volumes.
Cigarettes
Given the sharp increase in excise duty on filter segments in the 2010 Budget and negative
volume growth for the industry in FY11 (year-end March), we expect no sharp excise duty hike in
the forthcoming Budget.
The Ministry of Commerce is considering two changes to the FDI policy on tobacco:
1) exclusion of tobacco from the list of products where FDI is allowed for the wholesale trading
route; and
2) putting tobacco imports in the restricted list instead of open general license.
This would prevent foreign brands from accessing the Indian market, through the trading/import
route, and make Indian cigarettes more competitive.
We expect the current specific excise duty regime to continue, but any move to change the scope
of excise duty levy from specific to an ad-valorem basis has the following implications:
1) It would create an opportunity for cigarette companies to compete with bidis by launching
cigarettes at lower price points and, thus, improve penetration of white cigarettes in the
overall tobacco basket in the long term.
2) However, in the premium-end filter segment, where companies have pricing power, there
could be a cascading effect of price hikes, impacting net-of-excise revenue growth of the
tobacco companies. This would be negative for margins and profitability in the medium term.
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