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The Budget has moved a price based excise levy to a hybrid levy (specific + advalorem) for
cement companies, which we believe will raise excise incidence for ACC and other cement
companies by Rs2-4.5/bag. Coal price hike also raises cost by Rs2.5/bag. Maintain Sell
Budget provisions on excise duty changes
Excise duty, which was Rs290/mt on sale price below Rs190/bag, has been changed to 10%
on advalorem basis + Rs80/mt ( or Rs4/bag). Excise duty on cement with retail sale price
exceeding Rs190/bag, which was 10% on retail sale price, has been changed to 10%
advalorem + Rs160/mt ( Rs8/bag). Now suppose the industry was selling cement at
Rs275/bag. The earlier regime, they paid Rs27.5/bag excise duty; now under the new regime,
the excise duty incidence would rise to Rs29.5/bag. We estimate that the base for calculation
of advalorem excise levy of 10% would retail selling price less dealer commission, value
added tax and excise duty.
Move to a hybrid basis of levy ensures stability to government revenues
The rise in excise duty is much higher for the industry in locations, where selling price is lower
than Rs190/bag. While, under the earlier regime, the excise duty was Rs14.5/bag(
Rs290/bag), under the new regime, the excise incidence would rise to Rs18.5/bag. We
believe this is particularly negative in cement-producing states like Andhra Pradesh, Madhya
Pradesh, where prices in the recent past have drifted below Rs190/bag. So effectively, the
government, while moving into a hybrid basis of levy ( specific duty + advalorem duty), has
ensured its revenues do not suffer in the event of price fall induced by demand-supply mismatch.
We believe this is negative for industry, given the scenario we are heading into for the
next 18-24 months.
ACC to be negatively impacted by coal price hike as well
Among the leading cement players, ACC's dependence on imported coal is the lowest, hence
it largely sources coal from Coal India directly from linkages and from open market sources.
We estimate the proportion of linkage coal (directly sourced from Coal India) for ACC to be
higher at 50%, hence it would face a 30% increase in coal price for half the quantity of coal it
procures. While the industry can pass through these cost increases by raising prices, we
believe these structural cost escalations would be eventually negative for margins, especially
for the next 2 years, when the industry's average capacity utilisation rates would be around
75%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Budget has moved a price based excise levy to a hybrid levy (specific + advalorem) for
cement companies, which we believe will raise excise incidence for ACC and other cement
companies by Rs2-4.5/bag. Coal price hike also raises cost by Rs2.5/bag. Maintain Sell
Budget provisions on excise duty changes
Excise duty, which was Rs290/mt on sale price below Rs190/bag, has been changed to 10%
on advalorem basis + Rs80/mt ( or Rs4/bag). Excise duty on cement with retail sale price
exceeding Rs190/bag, which was 10% on retail sale price, has been changed to 10%
advalorem + Rs160/mt ( Rs8/bag). Now suppose the industry was selling cement at
Rs275/bag. The earlier regime, they paid Rs27.5/bag excise duty; now under the new regime,
the excise duty incidence would rise to Rs29.5/bag. We estimate that the base for calculation
of advalorem excise levy of 10% would retail selling price less dealer commission, value
added tax and excise duty.
Move to a hybrid basis of levy ensures stability to government revenues
The rise in excise duty is much higher for the industry in locations, where selling price is lower
than Rs190/bag. While, under the earlier regime, the excise duty was Rs14.5/bag(
Rs290/bag), under the new regime, the excise incidence would rise to Rs18.5/bag. We
believe this is particularly negative in cement-producing states like Andhra Pradesh, Madhya
Pradesh, where prices in the recent past have drifted below Rs190/bag. So effectively, the
government, while moving into a hybrid basis of levy ( specific duty + advalorem duty), has
ensured its revenues do not suffer in the event of price fall induced by demand-supply mismatch.
We believe this is negative for industry, given the scenario we are heading into for the
next 18-24 months.
ACC to be negatively impacted by coal price hike as well
Among the leading cement players, ACC's dependence on imported coal is the lowest, hence
it largely sources coal from Coal India directly from linkages and from open market sources.
We estimate the proportion of linkage coal (directly sourced from Coal India) for ACC to be
higher at 50%, hence it would face a 30% increase in coal price for half the quantity of coal it
procures. While the industry can pass through these cost increases by raising prices, we
believe these structural cost escalations would be eventually negative for margins, especially
for the next 2 years, when the industry's average capacity utilisation rates would be around
75%.
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