1. Event Update | Mining
July 8, 2011
Bhavesh Chauhan
Mining Tel: 022- 39357800 Ext: 6821
bhaveshu.chauhan@angelbroking.com
Mining bill – Impact analysis
Pooja Jain
MMRDA draft approved by Group of Ministers (GOM): The Group of Ministers Tel: 022- 39357800 Ext: 6839
pooja.j@angelbroking.com
has approved a draft bill for the mining sector making it mandatory for coal
miners to share 26% of their profit after tax with project-affected people.
Furthermore, the draft bill proposes that companies mining other resources
(such as limestone, iron ore, copper and bauxite) should pay amount equivalent
to 100% of the royalty on their production to the local population of the project
site. The bill will be taken up by the cabinet in the parliament’s monsoon session
for approval.
Other aspects of the bill: The bill also proposes to allocate mining blocks on an
auction basis and rationalise royalty rates. However, there is lack of clarity on
whether the additional tax burden will be tax deductible and whether the sharing
of profits will be for existing mines/new mines/both.
New bill broadly not as bad as the original draft: The original draft of MMRDA
had proposed sharing of 26% of profits with the local community. However,
the new draft makes a distinction between companies mining coal and companies
mining other minerals. With royalty rates on minerals other than coal at 7–10%,
the new draft would result in lower cash outflow for companies mining minerals
other than coal (compared to the original draft).
Likely impact on companies: As per our estimates, the EPS of mining companies
(other than coal mining) is expected to be lower by 8–13%, while for Coal India
the EPS could potentially decline by 17%. However, the extent of higher burden
could be lower (than the proposed 26% of net profits) for Coal India as it
(currently) spends a significant amount towards CSR activities. Also, we believe
Coal India has the cushion to pass on the additional burden to its customers as its
sells coal at a price lower than global benchmarks. For miners and steel makers,
the additional burden will have to be absorbed by them as they sell their products
at prices determined by global benchmarks. For steel companies, the impact on
EPS could be in the range of 2–8%.
Exhibit 1: Impact analysis in case the mining draft is approved
FY2013E
EBITDA impact (%) EPS impact (%)
Coal India (22) (17)
Sesa Goa (11) (8)
NMDC (16) (11)
Hindustan Zinc (16) (13)
Sterlite Industries (12) (10)
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1

2. Mining | Event Update
Exhibit 2: Reco Summary
Company Reco CMP TP M Cap Sales (` cr) OPM (%) EPS (`) PER (x) P/BV (x) RoE (%) EV/Sales (x)
(`) (`) (` cr) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E
Coal
Neutral 363 - 228,652 60,311 64,355 26.8 26.8 21.5 22.4 16.9 16.2 5.2 4.2 35.0 28.8 2.9 2.5
India
Hindalco Buy 188 242 36,144 75,211 80,961 11.6 14.7 16.0 25.5 11.7 7.4 1.4 1.2 12.2 16.9 0.8 0.8
Hind. Zinc Buy 131 158 55,372 11,748 12,560 56.4 56.8 14.2 15.3 9.2 8.6 2.0 1.6 23.6 20.6 5.1 3.9
JSW Steel Buy 882 1,024 19,684 35,722 42,800 17.5 18.0 92.1 115.6 9.6 7.6 1.0 0.9 10.8 12.2 1.0 0.8
MOIL Neutral 348 - 5,866 1,177 1,208 57.7 58.6 32.8 34.9 10.6 10.0 2.3 2.2 23.7 21.4 3.2 2.8
Nalco Sell 84 77 21,661 7,067 7,115 27.1 28.6 4.9 5.1 17.3 16.6 2.2 2.2 12.7 13.6 2.7 2.4
NMDC Reduce 258 241 102,349 13,075 15,036 73.0 72.9 18.5 21.3 13.9 12.1 4.1 3.3 33.3 30.0 6.4 5.2
SAIL Buy 137 191 56,483 47,903 56,016 19.2 22.1 12.9 16.5 10.6 8.3 1.4 1.2 13.5 15.2 1.4 1.3
Sesa Goa Buy 282 385 24,495 11,147 12,453 46.9 46.7 43.4 47.4 6.5 5.9 1.5 1.2 25.2 22.3 1.2 0.8
Sterlite
Buy 163 216 54,913 34,722 41,331 24.4 28.9 17.3 21.7 9.4 7.5 1.2 1.0 13.2 14.3 1.7 1.3
Inds
Tata Steel Buy 594 799 57,020 120,167 125,290 13.7 15.4 73.2 91.5 8.1 6.5 1.4 1.2 18.5 19.6 0.5 0.5
Source: Company, Angel Research
July 8, 2011 2

3. Mining | Event Update
Research Team Tel: 022 - 3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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Disclosure of Interest Statement
Analyst ownership Angel and its Group companies Angel and its Group companies' Broking relationship
of the stock ownership of the stock Directors ownership of the stock with company covered
Coal India No No No No
Hindalco No No No No
Hind. Zinc No No No No
JSW Steel No No No No
MOIL No No No No
Nalco No No No No
NMDC No No No No
SAIL No No No No
Sesa Goa No No No No
Sterlite Inds No No No No
Tata Steel No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
July 8, 2011 3