Expecting some changes in the mining bill: Chintan Mehta, Research Analyst, Sunidhi Research

In an interview with ET Now, Chintan Mehta, Research Analyst, Sunidhi Research, talked about the mining bill and the mining sector. Excerpts:

ET Now: What’s your quick prognosis then of the mining bill, which has been cleared?

Chintan Mehta: I guess it has already been in news. It is just one stage nearer from mining bill getting accepted. I guess now this bill is open for discussion in parliament but there are few certain things, which the whole event likes to unfold in that. Whether that kind of the royalty excess payment would be tax allowed. Per se for Coal India, it is paying 26% of PBT, whether it would be allowed for taxation, so that’s a key point that should hint on that front to watch out actually. There are certain grey areas, which yet need to be looked out in detail.

ET Now: But one of the facts that has probably come as a welcome improvement that is mandatory for coalminers to share the 26% of profit with the people who have been affected by the project. What are your implications for this on most of these coalmining companies?

Chintan Mehta: 26% PBT is very much on the cards when the first bill was introduced. It is more of a relief for the non-coal players on that front. They have to share 100% royalty only that time, so the companies like Hindalco, Hindustan Zinc, Tata Steel, JSTL, profit may be affected by 6-7% odd but Coal India is the largest of share, maybe around 20% odd kind of EPS can be eroded if its allowed for tax purpose. But however in the long term if I note it out, the land acquisition procedures might get a bit smoothen out on that front.

ET Now: We are seeing a majority of the mining stocks react positively, some of them have given up gains. Would you say that to the extent that this is just a confirmation of what was proposed in the draft bill, there is a lot of relief among investors?
Chintan Mehta: Absolutely. There must be certain contentions, whether the bill go through, whether the cabinet would not approve it, but the major hurdles remain whether the discussion will goes on the cabinet. This bill was if I recollect was supposed to get in monsoon session but that has been extended to winter session now. Any kind of action will depend upon how the bill goes to that session itself. I am very much sceptical the bill may go in a manner, which it has been presented. I am expecting some changes in that as well.

ET Now: To the extent that there is clarity on mining activities in the country, do you believe that the compulsion on a number of energy companies in the country to source or rather acquire energy assets in overseas markets could possibly come down?

Chintan Mehta: India is blessed with abundant coal reserves, so on the coal front, it is not logical to get in overseas except for the coking coal, which already the players like JSTL, Tata Steel have already been venturing out but where thermal coal is concerned, I guess India remains a better place to be in.

ET Now: Regarding the concerns that have been going on in Karnataka with respect to illegal mining, there are calls to streamline the existing law in order to regulate growth of the mineral sector. Your views on that?

Chintan Mehta: The way the reports suggest the illegal mining in Karnataka was going on a haphazard way and this was bound to come sooner or later but I guess this issue needs to be resolved with a serious notice because players like JSW Steel with 11 million tonne capacity, one of the largest steelmaker in India have been suffering with this issue, so I guess any government need to be very fast to react to this kind of issue because yesterday’s auction suggest 4 lakh tonnes have been given to JSW Steel, which only suffice for them to 8-10 days but that kind of inventory does not hold for a longer term perspective. When a company is putting up 30 days inventory, they have to survive with 8 days in inventory, so that’s completely injustice has been prevailing, so some issues need to be taken very fast to survive the industry out there.