The central government cut excise duties on auto fuels, imposed export duties on iron ore and other steel intermediates, and reduced duties on inputs for steel and petrochemicals to improve their local availability.
However, the measures did not bode well for companies in these sectors, with BSE metals and oil and gas indices falling the most on Monday, while auto indices were the biggest gainers. The Sensex and Nifty lost 0.07% and 0.32% each.
Export duty on iron ore and some steel intermediates scared steel makers as their profits in both domestic and export markets would be impacted.
According to analysts at Kotak Institutional Equities, 15% export duty on steel should bring down domestic steel prices by 8-10%.
Factoring in lower steel and iron ore prices, Kotak has cut its Ebitda/tonne estimate for steel companies by 20-35% and iron ore explorer NMDC Ltd by 24-33% for FY2023-24.
Top steel makers like Tata Steel, JSW Steel and SAIL saw shares fall over 10% on Monday. Analysts at ICICI Securities said, An impact of 5,000-7,000/tonne on Ebitda on integrated steel companies is very likely, whereas for integrated steel equities like JSW Steel, the impact could be approx. 5,000/tonne.”
Analysts at Motilal Oswal Financial Services Ltd (MoFSL) said the government’s measures have not led to a rise in international coking coal prices. They also do not expect steel users such as automakers, real estate developers and infrastructure companies to pass on the benefits to end consumers.
AK Prabhakar, head of research, IDBI Capital, said though the measures may help contain inflation in the short term, a sudden hike in excise duty is not good as companies are committed to capex.
Analysts said the measure would have had a better effect than when steel prices were at the same level a year ago, but coal was about 20% cheaper and profitability was almost at its peak. Analysts at MoFSL say that the industry then had the ability to absorb impact without sacrificing capex schemes, which is no longer possible.
Meanwhile, excise duty cut on petrol and diesel 8 liters and 6 per litre, is expected to reduce retail fuel prices, respectively. BofA Securities said, “This 8% sequential decline in retail price is expected to immediately bring down the headline CPI to ~20bp, but all of this will not be reflected in the May CPI, we retain our 6.7% inflation forecast for May. BofA Securities said. ,
Analyst at Jefferies India Pvt Ltd. Ltd said a steep 29% cut in fuel taxes coupled with lower surplus payments from the Reserve Bank of India may raise concerns over the fiscal deficit, though there is a respite from near-term inflation. According to him, the complete pass-on of duties is negative for oil marketers like HPCL and BPCL.
Oil marketing companies are also seeing a decline in earnings, and analysts at Prabhudas Lilladher have cut HPCL/BPCL’s earnings by 56-40% in FY13, because of OMC’s ability to reduce high marketing losses. . 6 more 10 per liter crude oil price correction on petrol and diesel for Q1FY23.
To be sure, cheaper fuel and steel could be a positive for automobile manufacturers, which have seen higher ownership costs impacting sales. Mitul Shah, head of research, Reliance Securities, said the automobile sector, which is facing commodity cost pressures, benefits from levying export duty on steel and reduction in taxes on imports as it could bring down domestic input prices. , However, inflation may still remain above the RBI’s desired upper limit of 6% for the financial year, he said.
According to Soumitra Bhattacharya, Chairman and Managing Director, Bosch India, “While the RBI has taken a very brave and good step of increasing the lending rate by 40 bps and increasing the CRR by 50 bps to control inflation, there is a possibility of inflation rising.” Chances are, and this inflationary pressure will continue to ease and the consumer will have to bear it.”
Nevertheless, these announcements are unlikely to derail the RBI’s rate hike path. “As outlined, the benchmark repo rate will be taken up by 50 basis points in June and +25 bp in August to pre-pandemic levels of 5.15%,” the DBS Macro Insights weekly note said.
Alisha Sachdev also contributed to the story.