Back in action

The expectation of better realisations has brought the zing back into Coal India. For now, a lot of hope is built into the valuation

Tete in Mozambique has proved to be quite unlucky for the world’s biggest coal miner and India’s most prized public sector undertaking, Coal India. About six years ago, the PSU had won a five-year licence for exploration and development in the north-western province of the African nation. After spending over ₹500 crore for exploration in the past few years, more than two-thirds of the 224 sq km leasehold mined was a futile exercise in moving mud. As a result, Coal India Africana, a 100% subsidiary, will now retain just 54 sq km of land and relinquish the rest. 

But coal secretary Anil Swarup, a career bureaucrat who PM Narendra Modi has entrusted with the task of reviving the coal sector, is not a worried man. The government has ensured that enough land and more will be available for the state-owned miner back home to address its chronic low output problem. “Coal India acquired more than 2,000 hectare of land last year. It has got 41 environment clearances and as a consequence of these clearances and acquisitions of land and the effort that has been put in by the people in Coal India, production has gone up,” Swarup said during a recent media interaction.

The results are already showing. After missing its production target for the last fiscal, Coal India managed to clock a 7% growth at 494 million tonne (MT) in FY15 — its highest growth output in about two decades. The PSU, which still enjoys a monopoly in coal mining, has set a production target of 550 MT for the current fiscal and an ambitious 1 billion tonne for FY20.

More importantly, the lifting of curbs on e-auctions and a proposal to allow Coal India to sell its coal to non-priority sectors at the market-linked price have also come as a whiff of fresh air. Both these categories account for almost 20% of Coal India’s offtake and could actually fetch double the money on a per tonne basis, compared with supplying coal to the regulated power sector at a discounted price. The change in fortunes has reflected in the stock price, which has gained 20% year-to-date, with a 10% spike coming in just under a month.

Now, contrast the development to the scenario that was seen at the beginning of 2015. There were hardly any takers for Coal India’s follow-on public offering at ₹343 in January, as a result of which the issue was undersubscribed. Later, those very same shares were allot


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