MMDR bill, 2011: PINC Research

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MMDR bill, 2011: PINC Research

PINC Research has come out with its report on MMDR.

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PINC Research has come out with its report on MMDR.

The Cabinet today approved the Mines and Mineral Development and Regulation (MMDR) Bill, 2011, which proposes sharing of 26% of the net profit of coal mining companies and 100% of royalty for other mineral mining companies with the people displaced due to such mining activities. The draft bill, approved by the GoM in July 2011, which received the cabinet approval today, is expected to be tabled in both houses during the winter session for parliamentary approval and enactment. This bill, if passed, will be applicable to both the existing and new mines. However, on the positive note, we expect this to facilitate land acquisition, which is one of the biggest obstacles in increasing mining output in India.

Impact: In the event of the enactment of this bill, on an as-is-basis, all mining companies will have to account for cash outflow on account of profit sharing and increased royalty. Based on initial information, we attempt to assess the impact of the Mining Bill on metals and mining companies.

Coal India : For Coal India, profitability and earnings to the shareholders would depend on 1) whether selfincurred social overheads are allowed to be set-off against 26% profit sharing as proposed and 2) whether the proposed 26% profit sharing is classified as expenditure for income-tax purpose.

Ferrous companies: Companies with substantial mining operations like Tata Steel , SAIL , JSPL , Sesa Goa , NMDC , Usha Martin , Godawari Power , etc will be impacted directly with the implementation of this bill. Although lesser integrated players like JSW Steel and Bhushan Steel would have marginal direct impact we believe the benefit would be short-lived as prices of iron ore and coal in India could rise on cost-push. Assuming price hike, we estimate FY13 EPS impact of 6-18% and fair value impact of 4-19% for ferrous companies in our coverage universe. The fair value impact is least for Tata Steel (3%) and highest for Godawari Power (19%).

Non-ferrous companies: Profitability of non-ferrous companies like Hindustan Zinc , Hindalco , NALCO and Sterlite will also be impacted due to 100% increase in their royalty payment. In our coverage (HZL, Nalco), assuming price hike, we expect fair value impact of 9% for HZL and 3% for Nalco.

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To read the full report click on the attachment