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Domestic Metals and Mining Industry: Supreme Court ruling opens a pandora box for the sector

ICICIdirect Research 16 Aug 2024 DISCLAIMER

Supreme court in its ruling on Wednesday (14th August 2024) has authorized the states to levy and collect tax on mineral bearing land from 1st April 2005.
The court has directed that tax payment can be staggered in instalments for 12 years from 1st April 2026 (FY27) onwards. Additionally, the court has instructed the states not to impose any penalties and interest of any kind on payment of dues on royalty.
This development poses a significant challenge for the mining space with the financial liabilities estimated between ₹1.5 -2 lakh crore. This anticipated increase in mining costs is expected to drive the overall cost of production of metals as well as power.
The mines in the states of Odisha and Jharkhand are likely to be most affected.
In our coverage universe, Coal India is expected to be significantly impacted by this ruling, particularly due to the operations of its subsidiary Mahanadi Coalfields Ltd, in Odisha, which contributes 27% of the company’s total coal production. Similarly, in the ferrous space, the Tata steel and SAIL are likely to face the considerable impact due to extensive operations in these states.
This is sentimentally negative for the sector in the near term and will lead to a lot of litigation and judiciary involvement. It’s a pandora box with far reaching implications.
However, our previous reading on the subject matter also suggests that the central government may altogether change/repeal the MMDR Act taking away states right on impose any fresh levies.
We will continue to closely monitor further developments in this area.  As on date we stick to our BUY call on Hindalco (Tp: ₹ 825), JSW Steel (Tp: ₹ 1,085) and Coal India (₹ 650).

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