Pranab Mukherjee lands a fell blow on Sesa Goa

The finance minister’s move to increase the export duty on iron ore to a flat 20% has irked Sesa Goa, the country’s largest producer and exporter of iron ore in the private sector.

The company exports over 90% of its production. Though Sesa Goa did not voice its reaction, sources say it is upset that no benefits were given for mining players in the country.

Analysts are already predicting the negative impact this increase will have on the company.

The steel industry had been lobbying for curtailing of iron ore exports for long.

During his budget speech, Pranab Mukherjee said the export duty on iron ore fines will be increased from 5% to 20% and on lumps from 15% to 20%.

“This is negative for Indian iron ore exporters as this will reduce their realisations, especially Sesa Goa, as fines comprise 80-85% of its sales,” said a post-budget analysis report by Aditya Birla Money.

This move comes as a severe blow to Sesa Goa and its parent company, Anil Agarwal-controlled Vedanta Resources, which has already seen some of its ambitious projects fall apart.

First, the company got orders to stop mining bauxite from Niyamgiri Hills in Orissa to feed its aluminium smelters in Lanjigarh.

Then, the environment ministry cancelled the expansion of its Lanjigarh Aluminium Refinery in Orissa from 1 million tonne per annum (mtpa) to 6 mtpa.

The company is still struggling to get a go-ahead from the government for the crude oil assets of Cairn India.

It is also awaiting clearances from the environment ministry for expansion of its iron ore mines in Goa. Prior to this, the company dropped its 10 mtpa iron ore mine expansion plan in Orissa due to a tiff with a local contractor.

In a March 1 report on Sesa Goa, analyst Bikash Balotia and team of Pinc Research said the hike in export duty will further compound the company’s problems as it has already been weighed down by a number of political issues with the government. “We estimate FY12E Ebitda impact of Rs870 crore (16%) and EPS impact of 11%,” the report said.

“Sesa Goa exports over 90% of its production and the product mix between lumps and fines is significantly skewed towards fines (85%). We believe the company will not be able to pass on the full extent of the export duty hike onto the buyer and this will negatively impact its margins,” said another report by analysts Fawzi Hanano, Navin Gupta and Oilivia Kar.

Bhavesh Chauhan, analyst with Angel Broking, said in his report on the company that export duty expenses for Sesa Goa has been raised to Rs1,903 crore for FY12 v/s the previous forecast of Rs485 crore for FY12 owing to the new budget proposal.