Sesa Profit to Rise by $40 Million as India Cuts Tax

Sesa Goa Ltd., India’s biggest non- state iron-ore exporter, said annual profit may increase by as much as $40 million after the government cut the tax on exports of the raw material, Managing Director P.K. Mukherjee said. The tax on iron ore lumps was reduced to 5 percent from 15 percent and the levy on ore fines was scrapped, as part of the government’s spending plan and interest rate cuts unveiled over the weekend to stimulate growth. The reduction comes at a time when iron-ore contract prices, at records after six years of gain, are forecast to decline next year as demand from China slumps. Cash prices for ore delivered to China have slumped 59 percent in the first half, prompting Rio Tinto Group, the second-biggest supplier, to delay shipments. “It will bring relief as the tax outgo will be considerably less,” Pawan Burde, an analyst with Angel Broking Ltd. in Mumbai, said by phone. “Contract iron ore prices are expected to decline sharply so it’s no secret that the profit growth will slow.” Earnings may rise 17 percent to 23.47 rupees a share in the year to March 31, 2009, and fall to 19.85 rupees a share in 2010, according to Bloomberg earnings estimates. Profit in the six months ended September 30 jumped fourfold to 9.7 billion rupees and sales more than doubled to 22.3 billion rupees, the company reported in October. Sesa Goa, a unit of Vedanta Resources Plc, exported as much as 66 percent of its annual 12.4 million ton output to China in the year ended March 31, according to its annual report. Chinese Demand China, the world’s largest consumer of iron ore, may ask Rio Tinto and rivals to accept an 82 percent price cut after prices of steel fell to 1994 levels, Shan Shanghua, secretary in general of the China Iron and Steel Association, said today. Sesa Goa’s shares fell 3.4 percent to 73.6 rupees at close in Mumbai after rising as much as 18.2 percent earlier. The stock has lost 62 percent of its value since January, and is headed for its first annual decline since 2001. Six of the 15 analysts who track the company have a “sell” recommendation on the stock, with nine predicting a price of 83.5 rupees over the next one year, according to data on the Bloomberg. India raised the iron-ore export duty to 15 percent in June to bolster supplies to local steelmakers amid surging commodity prices. The tax wasn’t passed on to consumers, Mukherjee said.