Input glitches to hit MMTC's Q1 net - Quoted in the Mint

State-owned trader MMTC Ltd expects a delay in extending iron ore supply agree- ments with overseas steel com- panies to erode its profit for the three months ended 30 June. The company's long-term agreements with Japanese, Chinese and Korean steel mills expired on 31 March.

The Union cabinet had last week allowed the company to extend the agreements until 2014, but there was no busi- ness in the first quarter. “It is a major setback and will affect our bottom line,“ MMTC's acting chairman and managing director H.S. Mann said.

Iron ore exports form a sig- nificant portion of MMTC's profit. MMTC's revenue grew 52% in the year ended 31 March to `68,833.27 crore, but net profit dipped by 47% to `112.77 crore due to declining mineral ex- ports.

The government plans to di- vest its equity in MMTC this fiscal. Mann said the iron ore ex- port business was not viable because of government poli- cies. “Export of iron ore is not via- ble because of a 20% duty on fines. Also, the railway freight for exports is three times com- pared to domestic freight,“ he said.

“Iron ore mining and trading busi- ness has wit- nessed a regu- latory flux in the form of ex- port duties and profit- share propo- t nents current- ly being con- templated by the govern- ment,“ said Dipesh Dipu, director of director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd. “This has been confounded by the socio-political risks which have led to delays in im- plementation of mining and downstream projects like steel manufacturing. These risks are adversely affecting the indus- try's growth and investment potential,“ he said.

Attrition and retirement of experienced executives has also hit MMTC. The trader has 1,500 em- ployees, but 20-25 executives quit every year to join private sector companies, including Adani Group, Glencore Inter- national Plc and Cargill India Pvt. Ltd. “This is an issue with all the public sec- tor units (PSUs) and we have to live with that,“ Mann said. PSUs facing attrition are trying to retain staff by up- grading their skills. MMTC re- cruits mostly cruits mostly from the Indian Institute of Foreign Trade and central uni- versities.

The company has dropped plans of buying overseas coal mines, commercial farming in Africa and generating electrici- ty locally, Mint reported on 4 July. The company plans to con- centrate on core business- es--minerals, metals and gen- eral trading. MMTC is also open to expand counter-trade agreement signed alongside state-owned Bharat Heavy Electricals Ltd (Bhel). In counter-trade deals, countries exchange goods and services rather than pay in cur- rency.

“We have already an MoU (memorandum of understand- ing) in place with Bhel for Malaysia for counter-trade. Malaysia has palm oil and tin, which are badly needed in In- dia. We are open to other op- portunities as well,“ Mann said.

To secure more orders over- seas, Bhel in a joint effort with MMTC plans to import palm oil worth $1 billion (`4,470 crore) from Malaysia, the sec- ond largest palm oil producing nation, in return for setting up a hydropower project in that nation. India, on an average, im- ports around 8 million tonnes of edible oil worth `26,000 crore every year. “We are open to expand our partnership,“ said a senior ex- ecutive at Bhel, who did not want to be identified.

Shares of MMTC fell 0.86% on the Bombay Stock Ex- change to `911.25 on Tuesday. The benchmark equity index, the Sensex, fell 1.65% to 18,411.62 points.