Export duty on steel and petro products to hit corporate earnings in FY23

Metals & oil firms together saw profit of Rs 3.05 trn in FY22

The recently announced special tax on the export of steel, iron ore and petroleum products, and a windfall profit tax on crude oil producers are likely to hit the overall corporate earnings during the current financial year. Mining & metals and crude oil producers —such as Tata Steel, JSW Steel, Vedanta, Hindalco, Oil & Natural Corporation (ONGC), and Reliance Industries — led corporate earnings’ growth in FY22 and any dip in their earnings due to regulatory changes is likely to pull down profits for FY23.

Together the listed companies from these two sectors reported a record net profit of Rs 3.05 trillion in FY22, up 84.9 per cent from Rs 1.65 trillion a year ago. In all, these two sectors accounted for nearly 32 per cent of the overall corporate earnings in FY22 and 44 per cent of the rise in profits last financial year.

Business Standard’s analysis is based on a common sample of 1,062 companies across sectors that are part of the BSE500, BSE MidCap, and BSE SmallCap indices. These companies reported a combined net (adjusted) profit of Rs 9.6 trillion in FY22, up 49.7 per cent year-on-year (YoY) from Rs 6.41 trillion.

Mining and metal producers were the biggest gainers in FY22 with the sector’s combined net profit (when adjusted for exceptional gains & losses) rising 132.5 per cent YoY to a record high of Rs 1.58 trillion in FY22, against Rs 67,900 crore in FY21.

Big steel producers, such as Tata Steel, JSW Steel and Steel Authority of India (SAIL), topped the earnings chart and their combined profit more than trebled to Rs 92,611 crore in FY22, from Rs 30,257 crore a year ago.

Together, these mining & metal companies accounted for 16.5 per cent of the combined net profit of listed companies in FY22 and 28.3 per cent of incremental growth in corporate earnings last financial year. These companies added nearly Rs 90,000 crore to their combined net profit in FY22, against a Rs 3.18-trillion rise in the overall corporate earnings last financial year.

Similarly, crude oil producers, such as ONGC and Oil India, and refiners and petroleum products exporters, such as Mangalore Refineries & Petrochemical and Reliance Industries, saw a big jump in earnings in FY22. For example, ONGC net profit nearly quadrupled to Rs 40,000 crore in FY22, from Rs 10,300 crore a year ago. The segment profit of the RIL's oil-to-chemical division which includes crude oil refining was up 52 per cent YoY to Rs 45,200 crore.

According to analysts, the unprecedented jump in earnings in the metals & crude oil sector was largely driven by higher product prices and margins. The rise in prices was led by a surge in commodity and energy prices in international markets, and a rise in the export of steel and refined petroleum products from India.

Refined petroleum products, such as diesel, gasoline and aviation turbine fuel (ATF), were India's top goods exports in FY22; they worth $69.5 billion, up 158.5 per cent YoY. Iron & steel products were the country's third-biggest exports in FY22, worth Rs 22.9 billion (up 89 per cent YoY).

The latest tax move by the government is expected to make it less profitable for companies to export steel and petroleum products, hitting their earnings in FY23.