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Export duty on iron ore increased to 30%
The Ministry of Commerce has hiked export duty on iron ore from 20% to
30% for both lumps and fines. Sesa Goa exports close to 90% of its total
sales, and hence an export duty hike could lead to EBITDA estimates
coming down by close to 20% in FY13F-FY14F and earnings estimates
coming down by close to 25%.
We don’t expect major drop in export volumes
Indian exports of iron ore have come down by 40-45% during the past
two years on account of earlier export duty hike from 10% to 20% and an
export ban/mining ban in Karnataka. With restrictions on transportation
of ore in Goa, even exports from Goa have suffered. All the factors
together resulted in iron ore exports from India coming down
significantly.
We believe above increase in export duty won’t impact exports
significantly, as: 1) the majority of iron ore being exported is from Goa,
which produces low-grade iron ore and doesn’t have major demand in
India. At the same time, transportation of ore from Goa will be very costly
for domestic steelmakers due to logistic issues; and 2) even after export
duty hike, companies such as Sesa Goa will have a decent margin (25-
30%) and hence exports should continue.
Domestic steelmakers like JSW Steel to benefit
The above move should certainly help Indian steelmakers dependent on
external iron ore i.e. JSW Steel (JSTL IN, INR536.95, Buy), in our view.
Since domestic iron ore prices are determined at export parity, increase
in export duty would lead to fall in local prices. JSW Steel could see 3-
4% improvement in EBITDA and 6-7% improvement in net profits in
FY13-14F as a result of the above hike.
Uncertainty continues – would wait for clarity
Sesa Goa has continued to see negative news flow beginning with the
mining ban in Karnataka, to uncertainty in Goa operations (due to
investigation of mining operations), and now the export duty hike.
There is no clarity on the restarting of production in Karnataka as Sesa
Goa’s mine is not amongst the mines cleared of violations by the Central
Empowered Committee appointed by the Supreme Court. Even in Goa,
the Lokayukta report is yet to come out, and hence the risks continue.
Though the stock has come off by 45% during the past five months (vs a
Sensex correction of 15%) and is building in most of the negatives, we
would wait for more clarity on the outcome of mining investigations to
change our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Export duty on iron ore increased to 30%
The Ministry of Commerce has hiked export duty on iron ore from 20% to
30% for both lumps and fines. Sesa Goa exports close to 90% of its total
sales, and hence an export duty hike could lead to EBITDA estimates
coming down by close to 20% in FY13F-FY14F and earnings estimates
coming down by close to 25%.
We don’t expect major drop in export volumes
Indian exports of iron ore have come down by 40-45% during the past
two years on account of earlier export duty hike from 10% to 20% and an
export ban/mining ban in Karnataka. With restrictions on transportation
of ore in Goa, even exports from Goa have suffered. All the factors
together resulted in iron ore exports from India coming down
significantly.
We believe above increase in export duty won’t impact exports
significantly, as: 1) the majority of iron ore being exported is from Goa,
which produces low-grade iron ore and doesn’t have major demand in
India. At the same time, transportation of ore from Goa will be very costly
for domestic steelmakers due to logistic issues; and 2) even after export
duty hike, companies such as Sesa Goa will have a decent margin (25-
30%) and hence exports should continue.
Domestic steelmakers like JSW Steel to benefit
The above move should certainly help Indian steelmakers dependent on
external iron ore i.e. JSW Steel (JSTL IN, INR536.95, Buy), in our view.
Since domestic iron ore prices are determined at export parity, increase
in export duty would lead to fall in local prices. JSW Steel could see 3-
4% improvement in EBITDA and 6-7% improvement in net profits in
FY13-14F as a result of the above hike.
Uncertainty continues – would wait for clarity
Sesa Goa has continued to see negative news flow beginning with the
mining ban in Karnataka, to uncertainty in Goa operations (due to
investigation of mining operations), and now the export duty hike.
There is no clarity on the restarting of production in Karnataka as Sesa
Goa’s mine is not amongst the mines cleared of violations by the Central
Empowered Committee appointed by the Supreme Court. Even in Goa,
the Lokayukta report is yet to come out, and hence the risks continue.
Though the stock has come off by 45% during the past five months (vs a
Sensex correction of 15%) and is building in most of the negatives, we
would wait for more clarity on the outcome of mining investigations to
change our view.
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