Tata Steel, NMDC, SAIL, Vedanta, HZL, JSW Steel, Nalco shares: What stock market analysts say on SC ruling

Shares of Tata Steel Ltd, NMDC Ltd, SAIL Ltd, JSW Steel Ltd, Vedanta Ltd, Hindustan Zinc Ltd (HZL) and Nalco Ltd are in focus today after the Supreme Court (SC) ruled that a state can levy taxes on mineral rights but clarified that it would be applicable from 2005. 

Stock market analysts said the states can levy additional taxes but would need to be rational to ensure investments and job creation. They believe the Centre could potentially intervene to protect the federal structure and maintain uniformity. 

Kotak Institutional Equities said the liabilities are likely to get crystalised in due course on case-by-case basis and that it sees only a marginal negative impact on its coverage companies. Non-integrated companies like JSPL and JSW Steel are better placed than integrated ones such as Tata Steel and SAIL, it said.

"We expect only a marginal negative impact (0-2 per cent of market cap) on coverage companies given the conditions imposed by SC while allowing retrospective taxes. Imposition of taxes by other states, like Jharkhand, could increase CoP by 1-2 per cent. Converters like JSPL and Jindal Steel are better placed than integrated producers or miners like Tata Steel, SAIL and NMDC," it said.

Coal India pricing as per the FSA are on a mine-head basis, which implies that all incremental costs including levies and taxes are to be borne by the buyer, Kotak noted.

The Supreme Court said the tax arrears can be paid over a staggered period of 12 years from April 1, 2026 and there should be no levy of interest or penalty for the demand made for the period before July 25, 2024. Companies with higher disclosure levels have been reporting contingent liabilities in their balance sheets with respect to certain demand made by States. 

Going forward, the impact and incidence of any such State-imposed taxes could be an additional cost to mining companies.

"Industry experts feel that over the long-term, investments in the metals and mining sector could get impacted as the royalty rates in India are amongst the highest globally and this autonomy to states to levy cess could be an additional burden," Antique Stock Broking said.
 
An amendment in the MMDR Act may cap the total royalty and cess can be a legislative relief to minimise the impact, Antique Stock Broking said, as it awaits further clarity in regards to ongoing cases and their impact company-wise. 

Antique said Tata Steel received various demands pertaining to FY05 and FY06 post which a writ petition had been filed in the Odisha High Court. Tata Steel has recognised Rs 17,350 crore as potential liability as contingent liability till June 30, 2024.
JSW Steel has recognised Rs 4,690 crore as contingent liability (as at the end of FY24) with regards to claims made by the Karnataka Government in lieu of Forest Development Tax Fee.

NMDC has recognised Rs 370 crore (as at the end of FY23) with regards to disputed claims under the Karnataka Forest Act, Antique said. The Government of Karnataka had introduced Forest Development Tax at a rate of 12 per cent on the ale value of iron ore with effect from August 27, 2008. Hindustan Zinc has recognised contingent liability of Rs 140 crore (as at the end of FY24) with regards to Environment and Health Cess (imposed by Rajasthan Government in 2008).

Jindal Steel & Power recognised Rs 3,640 crore as contingent liability at the end of FY23) with regards to disputed statutory and other demands. SAIL recognised Rs 9,740 crore as contingent liability with regards to ‘other duties, cess and levies’ and Rs 1540 crore in lieu of entry tax.

"Hindalco Industries has recognised contingent liabilities to the tune of Rs 290 crore (as at the end of FY24) with regards to legal and other matters and Rs 910 crore for indirect tax matters, Rs 3 crore for direct tax matters," Antique said.

Nalco and Vedanta have not made separate disclosure or any contingent liability provisioning yet, it noted.