Discussing the impact of the verdict, rating agency CRISIL believes the players of operational units may have to shell out Rs 10,000 crore as fine.
The Supreme Court on Wednesday cancelled 204 coal block allocations it declared illegal in August. The apex court has imposed a penalty of Rs 295/tonne on players with operational units, which according to rating agency CRISIL may amount to Rs 10,000 crore.
In an interview with CNBC-TV18, Prasad Koparkar, Senior Director, CRISIL Research says de-allocation of mines will have limited impact on operational power projects but severely impact secondary steel players.
Below is the verbatim transcript of the interview:
Q If you can quantify the impact on the health of the metal sector?
A: In the short-term the impact is going to be far higher on the metal sector and we are trying to quantify in terms of the impact on the margin. Our sense is that the steel sector will be the most impacted. These are not the large integrated steel players like Tata Steel or Steel Authority of India (SAIL) but largely the secondary steel producers and our sense is that the players who are impacted and whose mines have been cancelled, the potential impact on EBITDA margin can be as high as between 8 and 10 percentage point on the EBITDA margin which is a very significant impact.
On aluminium sector the impact may not be so high because for Hindalco Industries it is not the only production point. There our estimate is that the impact will be in the range of about 300 bps on the operating margin.
Q: Give us a sense of how the upcoming auction as and when it happens, how will it be valued?
A: It's a million dollar question. Our sense is that the players who already have operational capacities in the vicinity of these mines would be very keen to win back those mines again because the cost differential between captively produced and either imported or e-auction coal will be significant. Our sense is that captively produced coal will be in the range of Rs 800-1,000 per tonne.
Therefore, these guys would want to bid aggressively but what will also play a role is that unless there are competing capacities in the nearby areas because ultimately this is still going to be bid only for captive basis because commercial buying is still not there. So, we do not know the intensity for each of these mines but there will be few players who will be interested.
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