Ramco Cements, Dalmia Bharat, ACC, UltraTech shares: Impact of Tamil Nadu limestone taxes

The announcement of "mineral-bearing land tax" on limestone by the Tamil Nadu government is all set to increase cost of cement by about Rs 10 per bag and negatively impact cement players such as The Ramco Cements Ltd and Dalmia Bharat Ltd. UltraTech Cement Ltd and ACC Ltd are likely to be hit marginally, given their minimal share of clinker capacity in the state, analysts said.

The Tamil Nadu government has proposed Rs 160 per tonne additional taxes on limestone mined in the state. This comes after Karnataka's recent announcement of Rs 25 per tonne taxes on limestone mined.

"We expect additional impact of Rs 200 per tonne on raw material costs if the purposed taxes are implemented. Players with higher exposure in the state are Chettinad (Unlisted), Ramco (Reduce), Dalmia Bharat (ADD), India Cements (part of UltraTech Cement, ADD)," said InCred Equities.

The brokerge said a possibility for the industry negotiating it to lower levels seems more, based on the competitiveness between both the states. But the brokerage noted that other states may also introduce similar taxes going forward with stretching fiscal profiles.

To fully pass through the impact, the cement industry in Tamil Nadu would have to take a price hike of Rs 10 per bag, Choice Broking said adding that it is unlikely that the full impact of the cost hike can be passed onto the end consumers.

"There was a similar act that was passed by the Karnataka state government in December 2024, which is awaiting clearance from the state Goveror. There is also an increasing likelihood, in our view, that other states could also start enacting such laws in due course," Choice Broking said.

Among cement companies, Ramco Cements has the highest clinker capacity in TN (52 percent of its total clinker capacity), followed by Dalmia Bharat (23 per cent), UltraTech Cement (4 per cent) and ACC (2 per cent).

MOFSL noted that 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.

"The levy of tax on limestone by TN would be negative for Ramco Cements and Dalmia Bharat unless the cost increase is passed on to consumers. This development also weakens the competitive advantage of Ramco and Dalmia Bharat over other industry players that source clinker from other clusters (such as Yerranguntla in Andhra Pradesh and Kutch in Gujarat via the sea route)," MOFSL said.

Mining companies are required to pay royalties to the state for minerals extracted, including limestone. The royalty rates for limestone were set by the central government under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), and were calculated either as a flat rate per tonne or on an ad valorem basis, depending on the prevailing guidelines.

In July 2024, the Supreme Court of India ruled that state governments have the authority to levy taxes on mineral rights and mineral-bearing lands, in addition to collecting royalties. This ruling clarified that royalties are distinct from taxes, thereby empowering states to introduce their own taxation measures on mineral resources.

MOFSL said it continued to prefer players with a balanced geographic mix, higher capacity utilisation, and a strong track record of capacity expansion and successful integration. Further, it is positive on companies that have a strong presence in the north, central, and west regions. UltraTech Cement is its top pick in the large-cap space. It prefers we prefer JK Cement in the midcap space.