Cement stocks such as Dalmia Bharat, Ramco Cements, ACC Ltd, and UltraTech Cement are under the spotlight today following the Tamil Nadu Government’s notification of a mineral-bearing land tax of ₹160 per tonne on limestone in the State. Analysts believe that this move will increase cement production costs, potentially impacting margins unless the cost is passed on to consumers. Ramco Cements is expected to be the most affected by this development.
Motilal Oswal’s analysis suggests that the impact on EBITDA/t would be highest for Ramco Cements (₹80) followed by Dalmia Bharat (₹34). Ramco Cements has the highest clinker capacity in Tamil Nadu, accounting for 52% of its total clinker capacity, followed by Dalmia (23%), UltaTech (4%), and ACC (2%).
Jefferies, a global brokerage, estimates an impact of ₹40-70 per tonne on Dalmia or Ramco Cements’ EBITDA. While this move is currently specific to Tamil Nadu, it could potentially set a precedent for other states in the future.
Motilal Oswal points out that the Southern region has been facing several challenges over the past year, including low cement prices, weak government spending, and increased competitive intensity. This development also weakens the competitive advantage of Ramco Cements and Dalmia, compared to other industry players that source clinker from different clusters.
The brokerage recommends companies with a strong presence in the North, Central, and West regions. UltraTech remains their top pick in the large-cap space, while JK Cements is favored in the mid-cap space.
JM Financial analysts anticipate a 9% EBITDA impact for Ramco and 3% for Dalmia based on FY27 estimates. They suggest that State-based cement players may need to raise prices by ₹8-10 per bag. However, cement prices in Tamil Nadu have been declining over the past few years due to market share competition. JM Financial also sees a growing likelihood of other mineral-bearing states imposing additional levies in the future.
Meanwhile, Investec and Kotak Institutional Equities maintain sell ratings on Ramco Cements with revised target prices of ₹725 and ₹570, respectively.
In response to the new tax, The Ramco Cements has expressed its intention to request the government to reconsider the proposal. The company highlighted that the cement industry in Tamil Nadu already faces high taxes and duties, and this new tax would further increase costs for end-users. Ramco Cements also noted that the proposed rates by the Tamil Nadu government are higher compared to neighboring states.
As of the latest update, the Government has yet to announce the date on which the Tamil Nadu Mineral Bearing Land Tax Act, 2024 will come into effect and make the rules for its implementation.
On the market front, shares of Ramco Cements ended 2.94% lower on the BSE at ₹795.60, while Dalmia Bharat fell 1.57% to ₹1,619.20. UltraTech shares slipped 0.66% to ₹10,499.80, and ACC Ltd dropped 0.81% to ₹1,853.05 on the BSE.
In conclusion, the cement industry in Tamil Nadu faces significant challenges following the implementation of the mineral-bearing land tax. The impact on companies like Ramco Cements and Dalmia Bharat underscores the need for strategic adjustments to navigate these changes effectively.
