Coal news and updates

Hindalco gets ready for life without captive coal blocks

Aditya Birla Group company Hindalco is set to pay a Rs 500- crore fine after the Supreme Court cancelled the coal blocks, Talabira I and Mahan, allotted to the company and levied a Rs 295 a tonne penalty on all coal blocks in production till now.

Apart from the penalty, Hindalco will also lose up to Rs 150 crore a year, about three per cent of its net profit, as coal from captive mines are cut off and the company buys coal from more expensive sources. While the company estimates Rs 500 crore of fine, analysts have projected a Rs 600 crore penalty for the company.

Hindalco has also lost the Mahan block where production had not started. But the aluminum major was expected to produce up to 20 million tonnes of coal from the Talabira I block till March 2015, when the mine will have to hand over to Coal India Ltd, according to the court ruling.

A senior Hindalco executive said the company was readying for life without captive coal ever since the Central Bureau of Investigation (CBI) filed a first information report against it and Chairman Kumar Mangalam Birla.

"We are ready with a Plan-B in case the mines are cancelled," D Bhattacharya, managing director of Hindalco, had told this paper soon after the company announced its first quarter results this year.

Insiders said Hindalco could either buy coal at e-auctions by Coal India Ltd after March or import from countries like Indonesia. They added Hindalco would bid for the same coal blocks when the government auctioned mines under a new policy.

Till then, its costs are expected to go up by Rs 600 a tonne or more based on the difference between its captive coal and Coal India Ltd's linkage price for non-power users.

The Hindalco stock fell 4.3 per cent to Rs 149 on Thursday as nervous investors sold stocks of companies affected by the Supreme Court ruling.

The second coal block in Mahan, Madhya Pradesh, was a joint venture with the Essar group and analysts said Hindalco would face a steep cost escalation at its Mahan smelter because of the cancellation of the coal block. The block was not producing coal because of a campaign by environmentalists.

After handing over the blocks, Hindalco's earnings and profit will be hit by Rs 150 crore and Rs 120 crore on production of 2.5 million tonnes per annum, which is about one and three per cent of its 2015-16 earnings before interest, tax, depreciation and amortisation and profit after tax, respectively, according to Prabhudas Lilladher research.

The company is also facing a case filed by the CBI in a Delhi court over the allocation of the Talabira II block. Though the bureau has recommended closure of the case, the court has asked the investigating agency to produce documents on why it has come to such a conclusion.

Kotak Securities has cut Hindalco's profit estimates citing higher coal costs. "Given the limited e-auction coal availability, we believe Hindalco will have to source large quantities of imported coal, which will entail higher freight costs due to long distance. We cut our earnings per share estimate for HIndalco by 7-14 per cent for 2015-17," said a Kotak Securities report.

Source: Business Standard