November 21, 2008

Indian pipe makers gain most on withdrawal of export tax

BL reported that the withdrawal of the export tax levied on domestic steel pipe and tube makers by government has brought much cheer to companies such as Welspun Gujarat Stahl Rohren and Jindal Saw. These companies had suffered sharp declines in stock price following concerns of a likely contraction in margins when the government had imposed an export duty of 10%.

In the interim period between the imposition of export tax and the recent withdrawal of it, both Welspun Gujarat and Jindal SAW had suffered severe downgrades in their earnings outlook. This was based on the reasoning that these companies, which operated in a highly global competitive scenario, would find it difficult to pass on the impact of higher taxes to their clients. The recent withdrawal of the export tax does away with these concerns.

Considering that steel pipe companies import most of their steel requirements and would have had little to do with the tight supply of steel in the domestic market, the withdrawal of export tax does not come as surprise.