The Tamil Nadu government has proposed to levy an additional of Rs 160 per tonne on limestone with effect from February 20, 2025. State governments have been given the authority to levy taxes on mineral rights and mineral-bearing lands, in addition to collecting royalties.
This tax should be paid in advance on dispatch of minerals from the mineral-bearing land. This tax is over and above the royalty payable on limestone mining. Limestone is a key raw material for manufacturing cement and accounts for ~60-65 percent of the raw material cost and ~4-5 percent of total operating cost.
Therefore, as a result of the Tamil Nadu government's additional taxes, there could be a sharp impact on Tamil Nadu-based cement players. This move comes after Karnataka which has recently announced Rs 25/t taxes on limestone mined.
Ramco Cement reacted to the move by saying, "Cement is already suffering high incidence of taxes and duties. The imposition of new tax would adversely affect the cement industry in Tamil Nadu and make cement costlier at the hands of the end user."
90 percent, 51 percent, and 38 percent of the cement installed capacity of India Cement, Ramco Cement, Dalmia Bharat is in the state of Tamil Nadu, noted YES Securities. "We expect additional impact of Rs 200/t on RM costs if the purposed taxes are implemented. Players with higher exposure in the state are Ramco Cements, Dalmia Bharat, India Cements," said InCred Equities.
Dalmia Bharat shares have crashed 5 percent over the past two sessions, while Ramco Cements has fallen around 6 percent. India Cement's stock has tumbled around 4 percent.
In a filing with the exchanges, Dalmia Bharat said, "Upon notification, the aforesaid tax may impact all Tamil Nadu based cement producers, including [Dalmia Bharat]. The said levy is likely to have an impact of about Rs.130 Crore per annum which the company will try to pass on to its customers."
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Based on JM Financial's estimates, this is likely to have an EBITDA impact of ~9 percent for The Ramco Cement and ~3 pecent for Dalmia Bharat on FY27 estimates. Cement prices in Tamil Nadu have been on a declining trend, especially over the past couple of years, owing to fight for market share.
"To pass on this cost increase, Tamil Nadu-based players require to hike cement prices by Rs 8-10/bag. Besides, we see increasing possibility of other mineral-bearing states imposing additional levies in future," added the brokerage.
"Accordingly, industry players will undertake gradual price hikes to pass on the same, in our view. Pricing behaviour over the coming months is a key monitorable," added JM Financial.
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