Budget 2011: Is it positive for the metal sector?

Finance Minister Pranab Mukherjee announced the Union Budget 2011-12 in Parliament yesterday.

In an interview with CNBC-TV18, Prasad Baji, Senior VP - Institutional Equities, Research, Edelweiss Securities and J Mehra, Director, Essar Group, speak about the announcements made for the metal sector.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. Also watch the accompanying videos.

Q: What the budget has thrown up this time around for the metals sector?

Mehra: One thing, which has come good, is that excise duty has been retained. The industry has been wanting the government to take steps to conserve exhaustible resource. I would, therefore, say that the duty imposed on the exports of iron ore is a good step in that direction.

Q: Essar Steel exports pellets, does it? I think it would be a double advantage for Essar, you get iron ore cheaper because exporting it would mean paying a price. Would it mean that your pellet export would improve?

Mehra: We are not exporting any pellet. Our pellets are mentioned for captive use.

Q: Typically, how much would a steel company benefit in terms of margins because the iron ore is not going out? Do you foresee some kind of a fall in iron ore prices?

Mehra: There is one major issue. Having said that, there is a good step, one has to be very careful in implementation of this. It should not lead to manipulation of invoicing which may lead to kind of black money again. So, therefore, one has to carefully watch the implementation part of it.

If implemented properly, it should certainly put the pressure on the prices which would obviously give some relief to the industry. The iron ore prices in the last few years have sky rocketed.

Q: The other positive perhaps would be the import duty that has been increased on Ferro alloys and hot roll coils as well. That makes imports slightly more expensive, so good going for you guys. But what would the implications be on the financials, if at all?

Mehra: There have been significant exports in India in the last one year period. We have become net importers over the last two-three years. One of the aspects is we see a lot of capacities in the Indian system have come up on line. They would be commissioned and will be operational in the fiscal 2011-12. Therefore, this would be something which in view of the very high input prices. It prevents a kind of a pressure on the prices of the Indian markets because there are people in the rest of the developed world where they are going to throw away the material at prices which are unworkable, particularly in China, in Ukraine and all these areas.

Q: What in your estimate is the way prices would move from here on, once this import duty comes on board?

Mehra: I don