No meaningful positive for Sesa Sterlite from cut in ore export duty

By: |
Published: May 5, 2015 12:17:12 AM

The ministry of finance has cut export duty on iron ore (for 58% fe grade and below) from 30% to 10% from June 1, 2015.

The ministry of finance has cut export duty on iron ore (for 58% fe grade and below) from 30% to 10% from June 1, 2015. The cut in export duty will aid resumption of iron ore mining in Goa, which has low grade iron ore (58% fe and below). After issuance of the mining ordinance by the central government on January 12, the Goa government passed an order on Januray 15, revoking temporary suspension of iron ore mining and renewing leases of 87 mines.

The move will not have any meaningful positive impact on Sesa Sterlite’s overall Ebitda as iron ore currently accounts for 0.6% of consolidated Ebitda (likely to increase to 1.5% by FY17e). Also, overall capacity could be curtailed from 15m tpa now to less than 10m tpa as we expect a cap on production (in line with iron production limit in Karnataka). Hence, we have maintained our FY16/ 17e EPS estimates of R23.6/ 31.2 for Sesa.

While the cut in duty would be a huge relief for mining companies in Goa, we rule out any significant increase in exports from the state in the near term. Our pessimism stems from the fact that the average cost of production for Goa iron ore is in the range of $30-35/ tonne while Ebitda break-even will be at a likely realisation of $35-40/ tonne (existing global price for similar grade of iron ore is $33/ tonne).

For Updates Check Market News; follow us on Facebook and Twitter

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.