Share prices have largely factored in impact of CAG report

Delays in securing approvals key concern, say analysts

Even as the Comptroller and Auditor General (CAG) pegged losses from the allocation of coal blocks at Rs 1.86 lakh crore, analysts aren’t too worried about the “windfall gains”. However, they are concerned about delays in securing approvals.

Prasad Baji and Navin Sahadeo of Edelweiss Securities say, “Further delays in mining approvals due to a policy freeze and/or the imposition of conditions could dilute returns from mines.”

Among the companies named in the report on coal block allocation, those whose projects are nearing completion could be hit the hardest. “The impact may be more pronounced on Hindalco (Mahan) and BALCO (CPP). While Jindal Steel and Power’s Utkal-B1 coal is not named, it may also face delay in securing approvals,” the analysts add. On Friday, the Hindalco stock fell 2.5 per cent, while Jindal Steel and Power shares lost four per cent.

The uncertainty, which took a toll on the stocks of companies named in the report, could spill over to this week, after the markets reopen tomorrow. Ambareesh Baliga, chief operating officer, Way2Wealth Securities, says, “There could be knee-jerk reactions in the shares of companies named in the CAG report; those related to ‘Coalgate’ may come under pressure. However, currently, liquidity is quite decent. So, the cracks on these counters may not last too long.”

Some market experts, however, say the Street has already factored in the fallout, and substantial action is unlikely this week. Devang Mehta, vice-president & head of equity and sales, Anand Rathi Financial Services, says, “To a large extent, the impact of CAG reports on share prices of the companies named was already discounted on Friday. Though the sentiment would remain bearish on these counters, I do not see major declines.”

CAG had calculated losses to the exchequer (due to allocation of coal blocks) on the basis of a loss-per-tonne of Rs 295 on extractable reserves of 3.9 billion tonnes. Analysts, however, question this method. “The government is only allocating the blocks; the power producer has to survey, drill and process the output. Why would private independent power producers opt for a project unless there was profit in it?” asked an analyst.

A review of the allocation would lead to further delays and uncertainty on power projects. Rabindranath Nayak, lead analyst, power and capital goods, SBICAP Securities, says, “The negative sentiment is likely to continue and all private independent power producers allocated coal blocks could be severely impacted.”

In its report on ultra mega power projects (UMPPs), CAG had questioned the move to allow Reliance Power to allocate surplus coal from the Sasan UMPP project to the Chitrangi project. This resulted in Reliance Power shares falling 5.6 per cent on Friday. The company’s management clarified the coal blocks were allocated before the bidding process had started, and this was ratified by the empowered group of ministers.

On the CAG report on the public private partnership at the Indira Gandhi International Airport, Baliga said there were basic mistakes in the report pertaining to the GMR Group and the counter was unlikely to see much pressure. The GMR Infra stock fell 3.07 per cent on Friday after CAG questioned the levy of development fee on passengers, which it said was in contravention to the bidding process.