Mineral Tax Impact: Limestone Miners Better Placed Than Coal, Iron Ore Miners
Any additional duty on limestone will result in higher raw material costs, impacting Ebitda margins of cement companies negatively, Nomura said.
The Supreme Court's decision to allow state governments to impose a mineral tax on royalty on mineral-bearing land from April 1, 2005, to July 25, 2024, is a setback for mining companies, including cement players, as almost all of them are invariably limestone miners.
Still, limestone miners are better placed as the state revenue collections from limestone are significantly lower than bulk commodities like coal and iron ore, according to Nomura.
Impact on Cement Players
Nomura expects UltraTech Cement Ltd. to owe a total mineral tax of around Rs 4,400 crore. This implies that the cement maker will have to pay Rs 370 crore annually for the next 12 years, starting from fiscal 2027. The brokerage expects similar cash outflows from other cement players.
Taxation On Limestone Mining
Currently, limestone miners are required to pay a royalty of Rs 80 per tonne, in addition to a 30% district mineral fund charge based on the royalty. Miners pay the District Mineral Foundation, or DMF, a fund charge to support the development and welfare of the districts where mining operations take place.
Nomura's view on limestone miners not seeing a very high impact as per their calculations suggests that in FY24, the total duties, which include royalties and the district mineral fund charge, collected on limestone across India were less than Rs 5,000 crore.
Raw Material Prices To Increase
Any additional duty on limestone will result in higher raw material costs, impacting Ebitda margins of cement companies negatively, Nomura said.
However, since cement realisations are determined by domestic supply and demand dynamics, the brokerage believes that it would be easier for companies to pass on the increased costs.
