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Rediff News  All News  » Business » Cement manufacturers will continue to benefit

Cement manufacturers will continue to benefit

July 07, 2009 09:54 IST

The Indian cement industry with a total capacity of about 200 m tonnes (MT) in FY09 is the second largest market after China.

Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 60 per cent of the capacity, the balance capacity still remains pretty fragmented. Despite the fact that the Indian cement industry has clocked production of more than 100 MT for the last five years, registering a growth of nearly 9 to 10 per cent, the per capita consumption of around 134 kgs compares poorly with the world average of over 263 kgs, and more than 950 kgs in China. This, more than anything, underlines the tremendous scope for growth in the Indian cement industry in the long term.

As cement tracks GDP growth, the sector is impacted by ups and downs of the economic cycles. While the near to medium term growth prospects have been impacted by the economic slowdown, the long term growth story remains intact.

This is mainly on account of government initiatives in the infrastructure and housing sectors that are likely to be the main drivers of growth for the industry in the long run.

 Budget Measures
  • A slew of incentives have been doled out for end users of cement such as the housing sector and development of infrastructure. Some of them are:
    - Housing and provision of basic amenities to the urban poor enhanced to approximately Rs 40 bn.
    - Rs 20 bn provided for Rural Housing Fund (RHF).
    - Allocation towards National Highway Development Programme increased by 23% over FY09 budgeted estimates.
    - Allocation towards accelerated irrigation programme increased by 75% over FY09 budgeted estimates.
  • Customs duty exemption on concrete batching plants of capacity 50 cubic metres per hour or more has been withdrawn. Such plants will now attract customs duty of 7.5%.
  • Fringe benefit tax (FBT) abolished.
  • Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years.

     Budget Impact
  • The government has increased budgetary allocation for roads under NHDP. Further, with more incentives being spelled out for the infrastructure and housing sector, cement manufacturers will continue to benefit.

  • Imposition of 7.5% customs duty on concrete batching plants is likely to negatively impact the ready mix concrete manufacturers. However, it won't have a severe impact as RMC constitutes not more than 5% of total cement consumption.

     Company Impact
  • The increased focus on infrastructure development and housing sector is expected to raise demand for cement, key construction material, and hence volumes of cement manufacturers such as ACC, Ambuja Cements and Madras Cements.

  • RMC manufacturers like ACC, UltraTech, would be impacted with the imposition of customs duty.