At a suggested levy of Rs 295 per tonne on coal, the total one-time impact on the company would be around Rs 500 crore, Hindalco said in a filing to the bourses on Thursday. The penalty that Hindalco expects to pay is around 35% of its standalone net profit for FY14.
Though substantial, the penalty that Hindalco estimates is less than what analysts had expected. A research reported issued on Thursday by Nirmal Bang Equities had estimated the penalty at Rs 600 crore.
On September 24, the Supreme Court passed a verdict terming the allocation of 214 coal mines to various private and state government-owned companies as illegal and cancelled the allocations. It also accepted the attorney general's recommendation to levy a penalty of Rs 295 per tonne on coal mined till date and to be mined over the next six months till March 2015.
Several companies had chalked out plans to create capacity in sectors like power and metals, based on the captive linkage of coal provided by the government since 1993, through a process the Supreme Court described arbitrary and non-transparent.
While many of the de-allocated mines were not in production, coal from operating blocks will have to be replaced with market purchases of the natural resource, which will add to costs for companies.
Hindalco Industries...will take a major hit as we had factored in the benefit of captive coal mines in our estimates, the Nirmal Bang report said. We have assumed captive coal getting replaced by e-auction coal in our revised estimates.
The Aditya Birla Group company had been allocated four coal blocks Mahan coal block (jointly with Essar Power), Tubed coal block (with Tata Power), Talabira II and III coal blocks (with Mahanadi Coal Fields and Neyveli Lignite Corp), and the Talabira I coal block.
In its filing to the bourses, Hindalco said that only one of blocks allocated, Talabira I, was in production, feeding the plant that supplies power to the company's Hirakud aluminium smelter in Odisha.
The only incremental impact because of the cancellation of the coal blocks would be on the cost of production at Hirakud smelter starting April 2015, which is not expected to be significant, Hindalco said.
Regarding the other three blocks that are not in production, the company said it wasn't expecting production from these assets immediately and would purchase coal to operate its facilities.
The key issue for Hindalco would be steep escalation in cost of production at its 359-kilotonne-per-annum Mahan smelter due to cancellation of the Mahan coal block, a research note issued by Prabhudas Lilladher on Thursday said.
The Nirmal Bang report said the adverse development regarding cancellation of captive coal linkages would lead to a 12% impact on its estimates for Hindalco's standalone ebitda (earnings before interest, tax, depreciation and amortisation) for FY16 and a 4% impact on consolidated operating profit for the same period.
The brokerage had earlier estimated Hindalco to report a standalone ebitda of Rs 3,888.5 crore in FY16, which has been now revised to Rs 3,405 crore.
Hindalco reported a consolidated net profit of Rs 2,175 crore in 2013-14 on revenues of Rs 87,695 crore.
The Hindalco stock, which reacted sharply to the news, continued to decline on Thursday, falling 4.32% on the BSE to close at Rs 149.55 per share. The Sensex closed ended 1.03% lower at 26,468.36 points.