New mining bill can dig EPS pains for major miners: Experts

The Cabinet today cleared the new Mines and Minerals Development and Regulation Bill, 2011. The new bill mandates a 26% post tax profit-sharing by coal miners for the project-affected people.

While government's "revolutionary step" aims to benefit tribals in the minning areas, experts, Bhavesh Chauhan of Angel Broking and Tarang Bhanushali of IIFL say the move is all set to push down profits of major mining and power companies.

In an exclusive interview to CNBC-TV18, Bhanushali says most of the coal companies will be going for a downgrade. "The EPS impact on Coal India would be around 13-14%," he added. Listing the major companies likely to bear the brunt, both Chauhan and Bhanushali name Coal India as the major loser, followed by Hindustan Zinc,Tata Steel, Sesa Goa and JSPL. 

Below is an edited transcript of the discussion on CNBC-TV18. Also watch the accompanying video.

Q: What is your reaction on the Mining Bill passed by the cabinet?

Chauhan: I have to still go through the draft, however, all that was proposed in the previous draft has already been analysed. In terms of EPS impact analysis, profits of companies such as Coal India are expected to decline by 17% and for Sesa Goa and other miners the decline will be close to 2-8%.

Q: Does this assumes that it will be 26% for only ore that is sold out on merchant basis or even iron ore for in-house purposes?

Chauhan: Yes, it is both 26% of iron ore. For iron ore, we need to check what the bill basically states, how the regulatory process is likely to be, but for iron ore merchant miners it will be a straight 26%.

Q: What are your initial thoughts on this new mining bill that was passed by the cabinet, which is to be placed in the Parliament?

Bhanushali: Coal India will see a major impact, followed by Hindustan Zinc and Tata Steel. The companies that are major producers and are into mining will face the brunt. Sesa Goa and JSPL would be some of the other miners to see an impact.

Q: Are there any changes that you expect due to the note which was floated earlier in the day that maybe coal block auctioning is going to become difficult if that 26% is passed through? It might affect the fiscal deficit of the government and hence, they might be a little more moderate this time around. Are there any changes that you are expecting in this bill?

Bhanushali: We were expecting lower profit sharing for coal mining companies because it would be difficult to share 26% and that would again take the government share to 50% of their total profit. Hence, we expect a decline in profit sharing for most of the coal companies. This would again impact most of the power companies too that is where some downgrades were expected but this is a bit negative.

Q: In terms of an EPS estimate or EPS cut in FY13, what are you expecting from Coal India?

Bhanushali: The EPS impact on Coal India would be around 13-14%.