Slow-down fear, falling commodity price render sentiment weak

The stock of Coal India slumps to a record low of Rs 285.15 on the BSE in early trade on Thursday but recovered to close at Rs 286.95, down 0.5 per cent over the previous day’s close.

Analysts feel general slowdown is likely to impact the volume growth for Coal India. Besides, falling global coal prices is also affecting the sentiment, they added.

An analyst with a prominent broking firm says in view of low growth in manufacturing sector which reflects on lower demand for power (as is evident in the falling round the clock average tariff on grid), power capacities may remain idle. Accordingly, the demand for coal during the year may be lower than the projections.

“This in turn should impact the volume growth in coal sales impacting profitability of CIL,” he added.

Little scope

Since global coal prices are falling there is “little” scope for Coal India to increase prices high grade (sold at import parity price) in the future. Coal India, in fact, reduced prices of such coal on May 28.

Meanwhile, the signing of fuel supply agreements (FSA) between Coal India Ltd and its single-biggest buyer, NTPC will take place anytime soon.

The Coal India board, which met on Wednesday, agreed to reduce incentives proportionately if the quality of coal was poor — with a gross calorific value of less than 3,100 calories. “This is a small amendment which we will make in our FSAs,” the CIL Chairman, S. Narsing Rao, said.

According to Nomura, the onus of supplying base minimum domestic coal under FSAs to an additional 18-GW capacity (provided the projects come on stream and sign-up off-take under long-term PPAs) is a risk, given production/ off-take constraints. It, however, added that “on a positive note, CIL’s minimum domestic coal supply commitment under the new FSAs has been trimmed to 67 per cent in FY16 (hitherto pegged at 70 per cent).”

OFS may be at Rs 280

Analysts also expect an offer price of Rs 280 for Coal India disinvestment, considering the discounts on last few issues.

Narsing Rao, however, declined to comment on this. Company insiders feel the market is “reading too much into the future.”

In another development, The Children’s Investment Fund Management, which held 1.1 per cent of the equity in the state miner as of March 31, has been offloading its stake in the company.

According to Reuters, it sold nearly 1.2 crore shares since April.

TCI has made public protests since the Centre last year forced Coal India to reverse a price hike.

It filed a writ petition in the Delhi High Court and a lawsuit in the Calcutta High Court against Coal India’s directors.

(This article was published on June 27, 2013)
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