State-owned steel-major SAIL has raised concerns about increasing Chinese imports distorting domestic markets thereby impacting its expansion plans, specially when its debt remains on the higher side. The company is also “assessing” impact of the Supreme Court’s recent order allowing states to retrospectively levy royalty on mines and minerals extracted from their land.
According to Amarendu Prakash, Chariman and Managing Director, SAIL, it will take “another 15 days or so” to determine the financial implications on the Apex Court order.
So far none of the State’s or raw material suppliers of SAIL have raised any demand for payment of royalties due retrospectively.
In a previous submission to the Court, the steelmaker had submitted that retrospective taxation would have a near ₹3,000 crore impact on its finances. It is presumed that not all of this will be chargeable.
“Any miner will have some impact. We are still in the process of calculating or assessing; wait for another 10–15 days and we will figure it out,” he told businessline on the sidelines of a FICCI event.
Previously, the company’s top brass, during an earnings call had said, there are certain state-related taxes, which SAIL was already paying in states like Chhattisgarh and Madhya Pradesh.
In Jharkhand, where ₹100 per tonne cess — for iron ore and coal — has been announced, a prospective effect of “under ₹200 crore” will be seen. In Odisha, the company has its own mines.
“Earlier, in case of Odisha, they had 15 per cent tax on the ore which was being extracted. But then, the ruling went in our favour; and so we did not provide any contingent liability thereafter. And after that, there has been no claim by the Odisha government, nor have they gone for further litigation,” a company official had said.
According to consultancy firm, Nuvama, the Jharkhand government recently proposed additional cess of ₹100 per tonne on coal and iron ore and ₹70 per tonne on bauxite. Assuming that all State governments follow a similar tax rate, the research firm said the earnings before interest, taxes, depreciation and amortisation of companies could also be negatively impacted by 2–3 per cent, which is not alarming.
Fitch Ratings said, Indian metal and mining companies’ operating costs are likely to rise. It has raised risks of a sustained weakening of the companies’ EBITDA margins (due to the prospective levies). But there will be limited financial impact from the payment of past dues, it also mentioned.
“Steel and mining sector companies are more at risk from state-imposed taxes than sectors such as power and cement,” Fitch Ratings said in its report.
Expansion Plans
According to Prakash, the steel industry has been facing headwinds from Chinese imports. A fall in price of the metal in domestic markets, coupled with increased debt, have cast a long shadow on SAIL’s ₹1,00,000 crore expansion plans, where it aims to add 15 million tonnes to its existing capacity of 20 mtpa.
“We have raised it (Chinese imports) with the Ministry. And so have many other players. The Indian Steel Association has also taken up the issue,” he said.
According to officials, when SAIL had made its earlier projection, the highest debt to equity ration was pegged at 1:1. “But now with the current market, we’ll again have to work it out. How we are going to end up maybe probably what is going to be the debt equity ratio and how much further funds will be required. We’ll have to have a recalculation of that,” a senior official said.
SAIL’s debt in end Q1FY25 was over ₹35,600 crore, up nearly 20 per cent over FY24-end numbers of ₹30,000 crore.
“So it is difficult to do these assessment (on revising capex plan revisit) in weeks... depends on how the market is playing out... it (detailing) happens in months,” Prakash said.