Coal news and updates

Shareholders remained more or less indifferent to provisional production and offtake (or sales volume) performance of Coal India Ltd for the six month ended 30 September. Sure, the stock rose by 1.8% on Thursday in reaction to the announcement made on Tuesday after market hours (stock markets were shut on Wednesday). But then, the benchmark Sensex, too, was up by about 2% on the same day.

The company’s performance was marginally better than expectations and it achieved 97% of its production target in the first six months of the year. Offtake performance was even better, with the company achieving 99% of its target. What this also means is that Coal India will have to clock 8% and 6.9% annual growth in its production and offtake, respectively, for the rest of the year if it has to reach its guidance. On the production front, analysts reckon the company may miss its target of 482 million tonnes for FY14 by a few tonnes. However, the offtake guidance of 492 million tonnes could be met, helped by inventory.

But that’s unlikely to generate enthusiasm. In fact, the Coal India stock has been quite a laggard particularly, if one looks at the performance after its royal debut on the bourses, nearly four years ago. The issue price of the stock was Rs.245 per share and its shares had touched a high of about Rs.345 on 4 November, 2010, the listing day. Today, Coal India shares are languishing at Rs.303.

Does it mean that the stock hasn’t become the diamond that was expected to deliver spectacular returns to shareholders? Well, the stock did touch an all-time high of Rs.422 more than two years ago, which represents a 28% decline at the current price. What explains the fall, despite a strong balance sheet?

In recent months, the stock has been suffering from the offer for sale (OFS) hangover. Barring that, there seem to be two main reasons for the bearish sentiment. For one, the company’s disappointing past record of meeting its production target is a big spoilsport. Coal India has missed its production target for the last two financial years.

Secondly, for some time now, the fall in electronic-auction realizations and volumes has been a matter of serious concern. According to Coal India’s latest annual report, in FY13, 44.26 million tonnes of coal was allocated under spot e-auction as against 49.72 million tonnes of coal allocated in FY12. The company’s e-auction coal realizations had fallen by 16% in the June quarter.

The outlook too doesn’t appear bright. According to a recent Religare Institutional Research note, “E-auction prices for August were at Rs.2,168 a tonne, down 19.3% year-on-year and 0.4% month-on-month.” Clearly, with the OFS hangover and pressure on e-auction prices, it looks like it will be some more time before Coal India becomes a diamond again.

 

 

Source: Live Mint