Provisioned, expect limited impact from SC's ruling, say metal majors

Mining industry hit estimated at Rs 1.5 to Rs 2 trillion, companies to closely watch states for next move

Even though Wednesday’s Supreme Court (SC) order could result in a Rs 1.5-2 trillion impact on the mining industry, executives from leading companies noted that the impact might be limited  and some stated there are existing provisions.

Going forward, these companies will await further details and state actions before pursuing litigation, they added.

The recent SC order mandating the collection of dues retrospectively is expected to deal a further blow to the Indian mining industry. Arrears could exceed Rs 1.5-2 trillion, with mines in states like Odisha and Jharkhand being the most affected, according to a spokesperson for the Federation of Indian Mineral Industries. Both industry executives and analysts agree that Odisha will be the key state to watch.

In a regulatory filing, Tata Steel said on Wednesday that it is currently studying the Supreme Court judgement dated July 25, 2024 along with  the order pronounced today. "Financial impact, if any, on the company will be disclosed in due course."    

On July 31, the steel producer had disclosed a contingent liability of Rs 17,347 crore in its financial statements for the June-2024 ended quarter (Q1FY25) against potential claims by the Odisha government in this matter.

Other companies in the steel value chain, such as Steel Authority of India and NMDC, are expected to see an impact of an estimated Rs 4,600 crore and Rs 6,200 crore, respectively, related to iron ore mining, according to analysts from Prabhudas Lilladher.

In Wednesday’s trading, the Nifty Metal fell by 1.3 per cent, with companies such as NMDC, Hindustan Copper, and National Aluminium Company among the top losers.

While Tata Steel said it is studying the Supreme Court order, others such as Vedanta, Hindalco Industries, and Hindustan Zinc (HZL) do not expect a major hit.

Senior executives from Hindalco, during a post-earnings call on Tuesday, noted that the company does not face any retrospective exposure. The spokespersons concerned were unavailable for updated comments.

Arun Misra, chief executive officer (CEO) and whole-time director of HZL, said on Wednesday, “There is no material impact due to the retrospective effect of this judgment on the company.”

Its parent company, India-listed Vedanta also confirmed it has no pending claims. “We can confirm that we have no material demands raised upon any of our businesses at this time,” said a spokesperson for the company.

Vedanta added, “If and when any such demands arise, Vedanta will consider all regulatory and legal remedial measures on a case-by-case basis.”

“This ruling could also impact cement companies and may contribute to rising inflation, which, in turn, could delay potential rate cuts,” said Vikram Kasat, head of advisory at Prabhudas Lilladher Capital.

Senior executives from the cement industry remain hopeful that states will adopt a measured approach.

“The impact will depend on how judiciously each state government acts based on the judgment,” said a top executive from a major cement company, adding, “The minerals are essential for the development and growth of the economy through their utilisation by the industry. Basic economics suggests that any increase in the cost of raw materials, minerals in this context, will ultimately be passed on to consumers.”

He also noted that there were no pending claims for the cement sector in some southern, western, and central states of operation.

In an earlier report dated August 1, analysts from Ambit Capital  noted that high taxes by states would hurt investments, so their base case does not anticipate drastic taxes or levies. The note added that such measures could “hurt the profitability of iron ore and bauxite/alumina producers as well as integrated steel/aluminium producers. This also raises the possibility of differential levies by different states, leading to varied impacts on the profitability of cement and iron ore producers”.

Companies speak
 

“There is no material impact due to the retrospective effect” — Hindustan Zinc

“No material demands have been raised upon any of our businesses at this time” — Vedanta

“The company does not have any retrospective exposure” — Hindalco Industries *

* As stated on Tuesday, August 13

Source: Company comments