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Domestic Metals and Mining Industry: Supreme Court ruling opens a pandora box for the sector
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).
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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