SC ruling on royalties to affect profitability of mining companies: Moody's

Moody's Ratings has said the Supreme Court ruling on royalties and taxes will be credit negative for mining companies like Tata Steel, UltraTech Cement, and Vedanta Resources Ltd, as it will dent their cash flows and affect their profitability.

In a major victory for mineral-rich states, the Supreme Court had on August 14 allowed them to seek dues from April 1, 2005 on royalty and tax on mineral rights and mineral-bearing land from the Centre in a staggered period of 12 years.

"The retrospective taxes are credit negative for companies with mining operations in India such as Tata Steel Ltd (Baa3 stable), UltraTech Cement Ltd (Baa3 stable), JSW Steel Ltd (Ba1 stable) and Vedanta Resources Ltd (Caa3 negative) because the instalment payments will dent their cash flows," Moody's Ratings said in a statement.

"These companies will have to pay state taxes going forward that will hurt their profitability," it said.

"While the companies' retrospective taxes could be significant, the effect o