Better prospects for Coal India

The government proposal to develop 13 coal blocks and the prospects of buyers willing to pick up its inventory from the pithead augurs well

Coal India is once again in the news and this time it’s for good reasons. Two news articles appeared in the papers with one saying the Coal India may get waiver of public hearing while the other saying that there are takers for its offer to pick up coal from the pit head.

Financial Chronicle reported that the government has proposed to allow Coal India to develop 13 coal blocks without waiting for a public hearing. Environment and forest clearances for these projects are being cleared simultaneously as against the convention of sequential clearance. The government may permit raising 25 per cent more coal from these mines. This means that the mines which were generating 114.6 million tonne will now be able to increase their production to 145.91 million tonne.

While this news would have met with scepticism earlier as Coal India has a problem of logistics and not of production, there is a solution for this problem.

A Business Line report says that the company’s offer of liquidating its inventory of 70 million tonne has found three takers. Sterlite Industries, Adani Power and China Light and Power have responded to the company’s offer of lifting the coal on an ‘as is where is’ basis. The offer was made to 89 thermal power plants in the country.

Non-availability of railway rakes has been among the main reasons for the company not able to meet the required demand of coal producers. The companies that have shown interest will arrange for their own transportation for evacuating the fuel.

Availability of coal is expected to give a boost to electricity supply in the country which is witnessing near peak level shortages. With more coal supply and companies willing to take delivery at source, some confidence in the government can be restored.

The biggest advantage will of course be for Coal India, as it receives a top line boost by increasing its production on account of the waiver and fast clearance, while its bottom-line improves substantially by liquidating inventory.

The stock presently trades at Rs 350.5, higher by 0.5 per cent, discounting its previous four quarter profit 27 times. Both these news have not been taken into consideration by analysts who are still sceptical that the company will not be able to increase its production. Despite the Presidential diktat on the company to supply fuel to power plants in the first week of April 2012, there has been little progress in that direction. If the company moves fast on these initiatives by the government, upgrades will be round the corner.