Tamil Nadu’s Limestone Tax to Rise Cement Prices, Hit Ramco and Dalmia Bharat

The Tamil Nadu government’s proposal to impose an additional ₹160 per tonne tax on limestone mining is likely to affect cement makers in the state in the form of a price hike of ₹10 per bag. Ramco Cements Ltd and Dalmia Bharat Ltd, among companies of significant exposure in Tamil Nadu, are likely to be impacted while the larger UltraTech Cement Ltd and ACC Ltd will see only limited impact due to their relatively lesser clinker capacity due to the state, said CLSA.

It has the highest proportion of clinker capacity amongst cement producers in Tamil Nadu (52% of total clinker production) Dalmia Bharat comes next with 23%, UltraTech Cement and ACC have 4% and 2%, respectively.

Cement manufacturers would bear the brunt of this, according to industry experts. InCred Equities estimates the proposed tax could raise commodity costs by ₹200 per tonne. Major regional players, including Chettinad Cement (unlisted) and India Cements (part of UltraTech Cement), would also be impacted.

The development comes after Karnataka recently imposed a ₹25 per tonne tax on limestone mining. Analysts say cement players are likely to push for a lower proposed tax in Tamil Nadu as the industry is highly competitive within states. That’s not to say that other states won’t propose similar tariffs the same way they did with various state sales and income taxes.

The entire cost escalation would not probably be passed on to users and could keep the profit margins of cement firms under pressure, in line with Choice Broking. The brokerage further added that a similar legislation which was passed in Karnataka in December 2022 itself is still pending approval from the state’s governor.

The southern cement market is facing pressure from weak demand, multi-year low prices and increased competition, Motilal Oswal Financial Services (MOFSL) said. Unless the cement producers could effectively pass on the cost to the market, the new tax would squeeze the competitive edge that Ramco and Dalmia Bharat enjoyed, especially those producing clinker from Andhra Pradesh and Gujarat, it warned.

MOFSL stays positive on companies with large presence in northern, central and western India, with an overweight call on UltraTech Cement on the large-cap front and JK Cement on the midcap space.