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India Equity Research Reports, IPO and Stock News
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The Union Budget for 2011 was presented before parliament today. Key highlights which will
impact the sector include 1) increase in export duty of iron ore to 20% 2) Exemption of export
duty on pellets 3) Reduction in tax surcharge 4) Reduction in taxation of foreign dividends to 15%.
Uniform export duty of 20% for both iron ore fines and lumps
Impact: The export duty for both iron ore fines as well as lumps has been increased to a
uniform rate of 20%. Currently the export duty on iron ore fines is 5% while that of lumps is
15%. This will negatively impact iron ore miners like Sesa Goa and NMDC who mostly export
iron ore fines and lumps. Sesa Goa exported 94% of iron ore volumes in FY10. With the
export ban in Karnataka, about 15-20% of volumes are being sold in the domestic market with
most of the rest (~80%) exported to China in the current financial year. The mix between
lumps and fines is 15%:85%. Due to the hike in duty, we estimate an impact of -7% on
FY12F/13F earnings and an Rs32/share impact on our target price of Rs417. NMDC will be
relatively less impacted as it exports less than 15% of its volumes.
Full exemption from export duty is being provided to iron ore pellets
Impact: This will positively impact Jindal Steel and Power (JSPL). The company has a pellet
capacity of 5mt. Pellets are used in its DRI based sponge iron facility at Raigarh. With
attractive realizations for pellets, the company has increasingly sold pellets as opposed to iron
ore fines. The company sold 0.2mt of pellets during 3QFY11, most of it we believe to have
been exported. It may also need to export pellets to feed its 1.5mt Oman facility. The
company also has plans to increase domestic pelletization capacity to 10mt in the future.
Tax surcharge reduced from 7.5% to 5%. MAT increased from 18% to 18.5%
Impact: The decrease in surcharge from 7.5% to 5% is positive for all companies in the
space. The increase in MAT by 0.5% might marginally increase the tax burden of companies
which come under the tax holiday of the power sector. (Sterlite Energy's 2400MW plant,
JSPL's Tamnar I etc).
Taxation of certain foreign dividends reduced from marginal rate to 15%
Impact: Under the existing provisions of the Income-tax Act, dividend received from foreign
companies is taxable in the hands of the resident shareholder at his applicable marginal rate
of tax. Therefore, in case of Indian companies which receive foreign dividend, such dividend
is taxable at the rate of 30% plus applicable surcharge and cess. It has now been proposed to
tax the dividend from a foreign subsidiary at 15%. Hindalco, Tata Steel, Jindal Steel & Power,
JSW Steel etc., all have foreign subsidiaries and can now receive dividends at lower tax
rates. This is particularly positive for Hindalco with Novelis's robust cash flows and the
possibility of future dividends.
Extension of sunset clause for tax holiday for power sector
Impact: Under the existing provisions of section 80-IA of the Income-tax Act, a deduction of
profits and gains is allowed to an undertaking which is set up for the generation and
distribution of power if it begins to generate power at any time during the period beginning on
1st April, 1993 and ending on 31st March, 2011; It has been proposed to extend the terminal
date for a further period of one year, i.e., up to 31st March, 2012. This is positive for
companies which sell merchant power. (Sterlite Energy's 2400MW IPP, JSPL's Tamnar I).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Union Budget for 2011 was presented before parliament today. Key highlights which will
impact the sector include 1) increase in export duty of iron ore to 20% 2) Exemption of export
duty on pellets 3) Reduction in tax surcharge 4) Reduction in taxation of foreign dividends to 15%.
Uniform export duty of 20% for both iron ore fines and lumps
Impact: The export duty for both iron ore fines as well as lumps has been increased to a
uniform rate of 20%. Currently the export duty on iron ore fines is 5% while that of lumps is
15%. This will negatively impact iron ore miners like Sesa Goa and NMDC who mostly export
iron ore fines and lumps. Sesa Goa exported 94% of iron ore volumes in FY10. With the
export ban in Karnataka, about 15-20% of volumes are being sold in the domestic market with
most of the rest (~80%) exported to China in the current financial year. The mix between
lumps and fines is 15%:85%. Due to the hike in duty, we estimate an impact of -7% on
FY12F/13F earnings and an Rs32/share impact on our target price of Rs417. NMDC will be
relatively less impacted as it exports less than 15% of its volumes.
Full exemption from export duty is being provided to iron ore pellets
Impact: This will positively impact Jindal Steel and Power (JSPL). The company has a pellet
capacity of 5mt. Pellets are used in its DRI based sponge iron facility at Raigarh. With
attractive realizations for pellets, the company has increasingly sold pellets as opposed to iron
ore fines. The company sold 0.2mt of pellets during 3QFY11, most of it we believe to have
been exported. It may also need to export pellets to feed its 1.5mt Oman facility. The
company also has plans to increase domestic pelletization capacity to 10mt in the future.
Tax surcharge reduced from 7.5% to 5%. MAT increased from 18% to 18.5%
Impact: The decrease in surcharge from 7.5% to 5% is positive for all companies in the
space. The increase in MAT by 0.5% might marginally increase the tax burden of companies
which come under the tax holiday of the power sector. (Sterlite Energy's 2400MW plant,
JSPL's Tamnar I etc).
Taxation of certain foreign dividends reduced from marginal rate to 15%
Impact: Under the existing provisions of the Income-tax Act, dividend received from foreign
companies is taxable in the hands of the resident shareholder at his applicable marginal rate
of tax. Therefore, in case of Indian companies which receive foreign dividend, such dividend
is taxable at the rate of 30% plus applicable surcharge and cess. It has now been proposed to
tax the dividend from a foreign subsidiary at 15%. Hindalco, Tata Steel, Jindal Steel & Power,
JSW Steel etc., all have foreign subsidiaries and can now receive dividends at lower tax
rates. This is particularly positive for Hindalco with Novelis's robust cash flows and the
possibility of future dividends.
Extension of sunset clause for tax holiday for power sector
Impact: Under the existing provisions of section 80-IA of the Income-tax Act, a deduction of
profits and gains is allowed to an undertaking which is set up for the generation and
distribution of power if it begins to generate power at any time during the period beginning on
1st April, 1993 and ending on 31st March, 2011; It has been proposed to extend the terminal
date for a further period of one year, i.e., up to 31st March, 2012. This is positive for
companies which sell merchant power. (Sterlite Energy's 2400MW IPP, JSPL's Tamnar I).
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