Boban John
MUMBAI: Cement producers operating clinker facilities in Tamil Nadu are set to face pressure on profitability because of the state’s decision to impose a new levy on limestone, which will increase their cost on the key raw material. Dalmia Bharat and Ramco Cements will likely be the most impacted unless they are able to pass on the higher cost to consumers in the form of price hikes. Market leader UltraTech and ACC too will take a hit, albeit a minor one since the state accounts for only a small portion of their capacities.
The Tamil Nadu Mineral Bearing Land Tax Act, 2024, imposes a levy of ₹160 per tonne on limestone. Limestone accounts for nearly two-thirds of the cost of raw materials and about 5% of the operating cost for cement makers. While Ramco has more than half of its clinker capacity in Tamil Nadu, Dalmia Bharat has about a fourth. The country’s largest cement producer UltraTech has around 4% of its clinker capacity in the state; ACC has about 2%.
Assuming that the clinker capacity is fully utilised and 1.4 times limestone is used for every tonne of clinker, Ramco will have an impact of ₹81 per tonne, which was around 9% of its earnings before interest, tax, depreciation and amortisation (Ebitda) for FY27, JM Financial analyst Dharmesh Shah said. For Dalmia Bharat, the impact will be around ₹32 per tonne, which translates to 3% of its Ebitda, he said.
While the Tamil Nadu government has yet to notify when the Act would come into force, Dalmia Bharat estimates an impact of ₹130 crore a year. “The aforesaid tax may impact all Tamil Nadu-based cement producers, including the company,” it said in an exchange notification, adding that the company will try to pass on this cost to consumers. Ramco Cements said it will approach the government seeking to reconsider the levy. “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,” the company said in an exchange filing.
“It is also felt that the rates proposed by the government of Tamil Nadu are also on the higher side compared to the rates of the neighbouring states,” the company said. Offsetting these higher costs will require cement makers to increase the price of cement by at least ₹8-₹10 per bag, Shah of JM Financial said.
South India accounts for nearly a third of the cement produced in India. Tamil Nadu’s share in the country’s cement output is nearly 10%. Cement prices, while firm through most of the country in the March quarter, have remained weak in South India. Players in the region were unable to hike prices in January and February, and have, in fact, had to reverse some hikes taken in December as well.
“The south region is witnessing multiple headwinds over the last one year, e.g., multi-year-low cement prices, weak government spending and higher competitive intensity,” analysts at Motilal Oswal Securities wrote in a note.
Prices are expected to remain under pressure going ahead as well.
“We expect prices and industry margins to remain rangebound, notwithstanding seasonal volatility, in FY26-27E, as leaders focus on market share gain and consolidation,” Kotak Institutional Equities said in a recent report.
Over the last few months, market leaders acquired four South-based cement makers, with 44 million tonnes of capacity moving to large players.
