Coal India rallies on FDI hype, break-up rumours
22 May 2014
Shares of Coal India Ltd rallied as much as 8.22 per cent on the Mumbai market today on the back of reports that the new Narendra Modi-led government, which is yet to take charge, is considering a break-up of the public sector behemoth and is also planning to open up the sector to foreign investment.
The Coal India stock was trading 5.55 per cent higher at Rs392.80 on the Mumbai market in afternoon trade. The stock hit a low of Rs378.20 and a 52-week high of Rs401 in intraday trade today.
The market was led by some media reports that claimed that Modi who wants to ensure availability of power would first fix the coal sector in order to ensure uninterrupted supply of electricity across the country. Coal is used for more than half of the power generated in the country and is also the cheapest form of energy.
In its urge to improve availability of coal and boost power generation, the new government is expected to put special focus on coal production, which is crucial to India's growth revival.
A fresh round of funding, preferably through foreign capital, is expected to fast-track development of coal blocks. The government is also expected to address the issues around the captive coal blocks, domestic coal linkages, which will boost the sector.
Coal India enjoys a premium valuation due to its monopolistic position, higher RoE at 36 per cent, and 'utility-like' business model. But the coal miner, which accounts for 80 per cent of India's total coal output, has failed to meet its output targets for years.
Red tape, strikes, protests against land acquisition and delays in obtaining environmental approvals have kept coal output far below demand, making India, which has the fifth largest coal reserve, also the world's No3 importer.
So, in all possibility, reforms are expected to start with Coal India. The idea seems to be converting the various units of Coal India into independent companies, and making respective state governments equity holders to help speed up land acquisition and other such processes.
Infusion of fresh funds would help bring in modern mining technologies to boost efficiencies and convert "challenging mines into modern mines", the government will also explore international private-sector partnership to boost the mining sector, reports quoting BJP sources said.