Date | Aug 12, 2015: The Indian government plans to sell a 10 percent stake in Coal India Ltd., making its second divestment this year in the world’s biggest miner of the fuel as part of a federal asset-sale plan.
The sale may fetch about 235 billion rupees ($3.6 billion), based on the closing price of Coal India shares on Wednesday in Mumbai. The government, which holds 78.65 percent in the company, sold a 10 percent stake in January. It announced the latest sale Wednesday night.
Proceeds from the sale will further bolster the finances of Prime Minister Narendra Modi’s administration, which is already reaping the benefits of lower subsidy payments following crude oil’s plunge. The planned sale in Coal India also indicates the government’s resolve to stand up to labor unions, which have traditionally opposed any stake-sale plans, citing concern they may ultimately lead to privatization.
Coal India has received favorable ratings from analysts after the company’s output growth accelerated over the past few months. Of the 50 analysts tracked by Bloomberg, 36 recommend investors buy the stock, while seven recommend they sell. Another seven have hold ratings.
The company, based in the eastern city of Kolkata, reported on Wednesday its fourth straight decline in quarterly profit on higher costs of mining the fuel.
Net income dropped 6.7 percent to 37.6 billion rupees in the first quarter ended June 30 from 40.3 billion rupees a year earlier, the Kolkata-based company said Wednesday. That fell short of the 41 billion rupee median of 28 analyst estimates compiled by Bloomberg. Sales rose 6.5 percent to 189.6 billion rupees.
Higher Costs
Coal India shares rose as much as 1.2 percent to 375.90 rupees and traded at 372.70 rupees as of 9:33 a.m. in Mumbai on Thursday. The stock has declined 3.3 percent this year, compared with a 0.9 percent gain in the key S&P BSE Sensex.
Costs rose about 8 percent to 151.3 billion rupees, Coal India said. Shipments for the quarter rose 8 percent to 129.5 million tons from a year earlier, while production gained a record 12 percent to 121.3 million tons, the company said in July.
“One of the reasons for decline in profit was that costs went up, while prices remained stagnant,” Technical Director Nagendra Kumar said by phone. “The growth in shipments was mostly for low-grade coal, while sales through auctions came down.”
About 10 percent of Coal India’s sales are through electronic auctions. These open-market sales fetch higher prices than contract supplies.
Production Goals
Coal India aims to spend 626 billion rupees to raise annual production to 908 million tons in the next five years.
The spurt in output is a result of intense monitoring of projects and greater cooperation with states, which has led to faster land purchases, one of the main hurdles for Coal India, which produces about 80 percent of India’s coal, federal coal secretary Anil Swarup said. The miner, which has been blamed for missing output targets, has been able to acquire 2,000 hectares of land in the past year and has received approvals for more than 40 new mining projects, he said.
Work is also under way to build three new railway lines connecting untapped mines that hold the potential to produce 300 million tons of coal every year. These lines should be ready by the end of 2017, Swarup said.
(Soure: http://www.bloomberg.com/)