Coal news and updates

Murtuza Arsiwalla, senior analyst, Kotak Institutional Equities says  Jindal Steel and Power Limited (JSPL) has a good chance of winning back the Gare Palma coal blocks, but it will come at a cost of the company’s margins. Below is the verbatim transcript of Murtuza Arsiwalla’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18. Ekta: Now that the auction process of the coal mines is seeing some sort of moment can you first start by talking to us about Jindal Steel and Power (JSPL) and what is your sense in terms of where we stand in the coal block auctioning process especially first starting with Gare Palma? A: If you look at JSPL and if you look at Gare Palma they have a natural advantage in terms of being able to get the coal block back. Given their proximity, given that most of their capital cost are already being incurred so the natural advantage that JSPL has is immense in terms of securing back the Gare Palma coal blocks. However, it is also true, that region is relatively more competitive compared to the other regions where coal blocks are being put up for auction. That aside one of the grey areas that I find in the auction methodology that has been prescribed is on the 80 percent contracted capacity. Now it does not very clearly specify that whether that is a pre bid criteria or there is a timeframe within which the projects have to be contracted. Depending on which the legibility of JSPL essentially to participate will come into being. That is sort of a little bit of grey area where we would seek clarification but clearly JSPL has a chance to win back a better chance to win back coal blocks obviously at a price which would not allow it to maintain the margins that it previously did. Anuj: From your report it looks like you are positive on both  Sesa Sterlite  and Calcutta Electric Supply Corporation ( CESC  ) and that both these companies could actually gain quite a bit if you could explain that. A: Essentially if you look at CESC while it does not have too much to gain in terms of financial terms because the projects in West Bengal are cost plus projects. However, simply put the auction of coal blocks in that regions essentially could meet little competition because the distance factor essentially plays its part. So, the chance of CESC to win back again the coal block that it had lost as well as incremental coal blocks which have been put up for auction is relatively more than other players. In terms of Sesa Sterlite while I do not cover the stock specifically it is the metals team which does. What we are essentially seeing through the entire coal auction report is that they have a fair amount of capacities which are in advantageous locations and like the others they are not coal blocks which are lost. However, they essentially get the opportunity to participate in the auction process, improve the availability for their facilities as well as the cost that it possibly comes at. So, Sesa Sterlite in that sense tends to gain most from the auction process. Ekta: Give us the sense in terms of the Utkal BI as well? In your sense do they need to bid for it because of the Angul steel plant one and two, what is your call on JSPL as a whole in terms of target price and what are you expecting in terms of earnings going into FY15 as well? A: If you look at Utkal they previously have the Utkal block which is know being classified for power and that is sort of the Angul plant and the associated captive plant being non regulated. There are lesser coal blocks that they could potentially bid for and that to me is a bigger worry for JSPL relative to what you are seeing in the Gare Palma or the power side of the business. We currently have a reduced rating with a target price of Rs 160 on JSPL.

 

 

Source: CNBC-TV18