The stock of Coal India has been ruling near its all-time high level. It touched an all-time high of Rs 370.9 on Monday, and has gained about 17 per cent in the last one month, even as the BSE Sensex has remained flat, on expectations that the PSU major is set to increase coal prices for its customers. The stock, however, slipped 1.72 per cent at Rs 353.55 on Wednesday.

Expectations are rife that Coal India will hike prices in the next couple of months to offset an increase in wages once the National Coal Wage Agreement (NCWA) IX is implemented.

The term of the NCWA VIII expires in June 2011. Coal India would start incorporating the wage increases into its cost structure beginning the second quarter of the next fiscal, though the actual outcome of NCWA IX negotiations might take longer to fructify.

Coal India, on the other hand, has had its share of bottlenecks.

A Religare Securities report said the company has been able to acquire only one-tenth of the land (6,000 out of 62,000 hectares) that it had set out to buy during the 11{+t}{+h} Five-Year Plan (period 2007-2012).

Procedural delays for obtaining forest and environment clearances, rehabilitation issues, non-availability of land records and non-cooperation from other Government departments were among the other challenges.

Crippling issues

Other issues that are denting CIL's business interests is Naxalite violence in almost every coal belt, which is driving up the cost of doing business.

There are 126 coal blocks in the no-go areas with respect to environmental and forest clearance; besides, BoxN wagons for transporting coal are also not available.

All this, along with the risk of sharing 26 per cent of profits with the locals if the new mining policy is implemented, make CIL's prospects in the immediate future dim, said the report.

Coal prices have gone up worldwide in the recent past, mainly on robust demand for imported coal from China and India.

Meanwhile, this year's Union Budget announced that 77 CIL projects of 185 million TPA were under different phases of completion and another 65 of a capacity 195 million TPA were under various stages of approval.

It is interesting to note that these projects were identified for development during the Ninth Five-Year Plan (1997-2002) and have been delayed due to environmental and forest clearances.

Outlook

Three brokerages issued mixed opinions on the stock. Though many are confident that Coal India's EBITDA margins would improve going forward, from the FY10 level of 22 per cent, they felt it remains to be seen whether the same trend would occur in the stock price as well.

BofA Merrill Lynch has a neutral view on the stock, saying that the price upside is limited. “We expect steady volume growth and productivity gains to drive 15 per cent EPS CAGR over FY10-3E. The discount to global prices offers flexibility and limits downsides. However, given its 31 per cent rally since IPO, valuations to its coal peers are at a premium and at a slight discount to its utility peers, limiting upsides to valuation,” the report said.

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