Clearance of Mahan block positive for Hindalco: Edelweiss

An empowered group of ministers (EGoM) on Wednesday gave Hindalco the go-ahead to start production from the Mahan coal mines in Madhya Pradesh.

In an interview to CNBC-TV18, Prasad Baji, senior VP - institutional equities - research, Edelweiss Securities says, this was actually quite awaited for a long time because the EGoM was supposed to consider this and finally group of ministers has cleared it. “This is essentially the stage-I forest clearance, but this is the most crucial clearances. There are some formalities after this also of the approval process, basically stage II. But they are expected to be less onerous,” he adds. Also read: Positive on June series, Hindalco and MCX, says SP Tulsian Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: How have you read this news? What kind of a potential positive is this? A: This was actually quite awaited for a long time because the EGoM was supposed to consider this and finally group of ministers has cleared it. This is essentially the stage-I forest clearance, but this is the most crucial clearances. There are some formalities after this also of the approval process, basically stage II. But they are expected to be less onerous. This is the key clearance that the company has got. Therefore, there visibility on the mine is eventually starting. Q: What could it potentially add in terms of value per share? A: If you look at the Mahan project, there was no coal security until this clearance. The captive alumina from the Utkal project, which was supposed to feed this, had also delayed. So, we were ascribing negative valuation to the project of around Rs 55 million, it will come to around Rs 27 per share on a diluted basis. So, effectively if the coal security comes through then atleast the negative valuation would tend to go away. Ofcourse their project would still take time to get the coal, but atleast the negative bias would go away. Q: What kind of conditions do you expect to be imposed for operating this asset? How do the costs weigh up, you are sure that they will not over weigh the benefits of getting this clearance? A: I think that has also been debated. Now, we don’t have complete clarity because this is again from the various other reports that we are seeing. What we understand is part of the mining area will be carved out where there are good quality forest. But this should constitute only around 15% of the area, 85% of the area would still be available. Secondly, there will be CSR expenses which will be around 5% of the project. There will be the routine measures such as a forest station, NPB payments for the land that you are going to mine on. So, those are there, but I don’t think these are so onerous as compared to the benefit that will come through captive coal. Therefore, broadly speaking though we do not have full details, it does seem that the cost will not be so much as to outweigh the benefits.