Low production, but govt mining firms rake in high profits


At a time when the corporate sector has been facing severe pressure on its bottomline, state-owned natural resources firms are piling on the profits, helped largely by the fact that mining areas across most mineral-rich states are progressively shrinking.

Central sector mining major NMDC Ltd, for instance, is India's most profitable company by a long shot, with profits adding up to nearly two-thirds of the firm's turnover last fiscal. Coal India Ltd too is sitting pretty, with the distinction of being "the only company in the world where the production has gone down even as profits have gone up", as the chief of state-owned power major NTPC Ltd put it while launching a no-holds-barred attack on the state-run coal mining firm in May this year.

The little-known Orissa Minerals Development Corporation Ltd (OMDC), a subsidiary of state-owned Rashtriya Ispat Nigam Ltd, has been consistently ranked as the most expensive stock in absolute terms at Rs 60,039 per share as on August 7, prior to a recent stock split. This is despite the fact that the company's mining operations have been held up for years. In 2011-12, OMDC's net profit at Rs 3.44 crore was actually higher than its turnover of Rs 2.48 crore, thanks largely to its "other income" component.

In case of NMDC, over the past four years, the mining firm's sales grew at an annual average of 19 per cent to Rs 11,261 crore in 2011-12, even as profits grew at 22.3 per cent annually to Rs 7,265 crore — translating into huge margins of around 65 per cent at the net level. This is despite the company's iron ore production trailing the overall growth numbers at 7 per cent to 27.26 million tonnes during the fiscal.

One of the key reasons for NMDC raking in the profits is the surge in domestic iron ore prices due to an artificial shortage. NMDC, which has its major iron ore mines in Chhattisgarh and Karnataka, has been a big beneficiary of the mining restrictions imposed in Karnataka last year.

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