In an interview with CNBC-TV18's Ekta Batra and Anuj Singhal, Chintan Mehta, Metal Analyst at Sunidhi Securities, talked about his outlook for the sector and its various companies.
On the issue of the passage of the MMDR Bill in the Rajya Sabha, he said Tata Steel and JSW Steel would be the biggest beneficiaries.
Below is the transcript of the interview on CNBC-TV18.
Anuj: Let us talk about Jindal Steel and Power (JSPL) first, do you have that stock under your coverage and what do you make of the kind of volatile moves you have seen on that?
A: JSPL has been flooded by plenty of news. On the one hand, when we got, the company has secured Gare Palma IV/2 and 3, now it is under review that our government is yet to accept those bids made by JSPL. So it is plenty of news which is floating around JSPL. I guess the dust will get resolved by this month end and we will have better picture, a full picture rather by March end.
Ekta: If in case these particular blocks for JSPL are under threat for any reason in the future, what would be the back-up plan for JSPL and would you then re-adjust your valuations that you have on JSPL?
A: Two things to this. First it would be too early to jump to the gun and say the company will be losing the coal blocks because it is still under review and company has not accepted any malpractice has not yet been detected. So, it is very unfair to say at this point of time, the company will eventually go away with the coal block.
And the second part, if eventually they lose out the coal block and if they are not able to get the coal block with the highest bids. I am afraid they do not have any kind of back-up immediately. But as the government has been saying that there are more coal blocks yet to be offered, they have to secure it on immediate basis. Because running power plants on e-auction coal at current prices, it is out of the context. It is difficult to operate power plants on e-auction.
Ekta: Let us move on. Sesa Sterlite is in focus on account of the Goa mining ban which has now been revoked after three years. I was talking to a couple of analysts, they said that they do not expect the upside to be very near-term for them. Is that your opinion as well that maybe Sesa Sterlite could restart mining after sometime in Goa?
A: Precisely. There is a lot of fuss about it, the environmental ministry that Goa mining is set to start. But there are plenty decisions yet to be taken. The pollution control board in Goa is yet to take a call on that. The new mining limits are yet to be allocated to those companies. And the desired state is that when the Goa government set out 15 million odd tonnes for inventory clearance, only 5 million tonnes was actually sold out.
So, given the current prices internationally for iron ore, it becomes very difficult for companies like Sesa Goa to make meaningful margins on that. And secondly, Mines and Minerals (Development and Regulation) (MMDR) bill is yet to be taken into account because which takes care of the mines which are due for renewal. So there are plenty of stuff yet to be taken and the monsoon coming up from June. So, I do not expect any mining to start before September from Goa actually.
Anuj: What about Hindalco Industries Ltd? That stock has also been quite volatile of late.
A: It is the same fate as JSPL but in a different way. The recent CBI stuff has to do with the findings. But, however the company has secured large coal blocks but not fully satisfying those coal needs. The prices which they have secured the coal blocks are matching to e-auction prices.
So, we do not see any kind of uptake in margins per say but they have mitigated a kind of a risk if they would not have bidded for those mines. So, we are fair bit positive on Hindalco and any eventually increase in London Metal Exchange (LME) prices, this company would the first one to actually recover the aggressive bidding which they have made for coal blocks.
Ekta: If in case we see the MMDR bill go through the Rajya Sabha, what do you think would be the impact on the likes of say JSW Steel, which is supposed to be one of the bigger beneficiaries of it or is it already factored in?
A: Companies like JSW Steel and Tata Steel will be the biggest beneficiaries. The biggest beneficiary would be Tata Steel per say because its few mines in Orissa, which the high court order is pending and high court is in fact awaiting the MMDR bill where it says the mine is come for second renewal will be automatically allowed till 2030. So, I guess Tata Steel has more to benefit out of this if MMDR bill goes through actually other than JSW Steel.
Ekta: Any disclosures?
A: We do not own these stocks personally or in our corporate as well.
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