Coal India, the only unlisted navaratna public sector company has issued its IPO. Coal India is the largest coal mining company in the world in terms of reserve-base and annual production.This is by far the largest IPO in India (Rs 15,100 crore). Coal India is selling more than 631.6 million shares in its IPO.After the initial public offering or IPO, the government’s stake would come down to 90%.Coal India is a holding company for 11 subsidiaries which are engaged in the development and operation of coal mines as well as exploration and design, making it an integrated coal mining company.
Coal India is a near monopoly with 82 per cent share of India's total coal production. Its fundamentals are strong, given the widening demand-supply gap for coal and the company's improving operating metrics. High return on equity (38 per cent for 2009-10), despite significant cash balances, too bolster prospects.
Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers on the offer.
The timing of IPO is perfect and it is bound to attract the foreign institutional investors, leading to more dollar inflow in the economy and hence strengthening the rupee further.
The stock is a good long-term bet with steady cash flows and limited risk to profitability. It may also turn out to be a high dividend paying stock, with huge cash reserves, minimal debt and limited cash requirement for its expansion plans for the next few years.
Future Prospect of Coal India
As global economy is recovering from the meltdown , the energy sector is going to boom in future. Presently according to coal ministry the gap between domestic demand and supply is around 67 million tonnes. So as far as demand side is considered ..it is win win situation for coal India. According to analyst demand is bound to grow at double digit rate keeping in mind government ambitious project like rural electrification and the increasing industrial demand.
Coal India is bound to go for expansion plans to fill the growing gap between demand and supply. Coal prices are also increasing as energy demand is growing.
The company has ambitious plans to go for acquisition of mines in foreign countries such as Mozambique, Australia and Indonesia.The proportion of expensive under-ground mines has fallen from 13.3 per cent in 2005-06 to 10 per cent as of March 2010.The impact of this on the cost structure is quite high as the current cost of mining per tonne from open-cast mines is at Rs 520 per tonne compared to Rs 2,145 per tonne in under-ground mines.Mechanised open cast mining trims employee costs for the company; the employee base is already down 3.7 per cent over the last three years and a net reduction of 11,000 employees is expected this year; from the current base of 4 lakh.CIL also plans to add 111 million tonnes of coal washeries which would improve the beneficiated coal output, which has higher calorific value.The average price realised for beneficiated coal (Rs 2134/tonne in FY-2010) is almost double the average price for the entire output, with only marginal addition to costs for washing. Currently the high grade coal is sold at import parity price unlike cost plus in case of low-grade coal.The proportion of coal sold through e-auctions is also expected to go up to 20 per cent from the current 13 per cent, owing to the demand-supply gap.While the existing fuel supply agreements (FSAs) with power projects stipulate that Coal India meet 90 per cent of its commitment or else pay a penalty to the clients, the commitment is lower at 60 per cent for non power sectors.New power FSAs too have a 50 per cent commitment. This allows room for Coal India to sell larger quantities through e-auction.
Risks associated :Investors have to bear in mind that the coal mining business is fraught with risks, apart from requiring long gestation periods. Execution delays may crop up owing to regulatory, legal and environmental hurdles, land acquisition delays, political risks and social disturbances. Geographical concentration of resources may impose logistical problems. ECL and BCCL, wholly owned subsidiaries, despite turning profitable recently have negative net worth of Rs 6015 crore and Rs 5400 crore respectively. These companies' contributed 36.4 per cent to the overall employee costs but only 13.4 per cent to the revenues of the parent.The new MMDR Bill may require Coal India to set aside 26 per cent of the profits for resettlement and rehabilitation activities of project affected persons. However, given the company's monopoly status and pricing power, the additional costs can be passed on to consumers.
Sunday, October 31, 2010
Currecy Wars
World is yet to recover from the detrimental Financial crisis. The growth is too sluggish in US and European Union. Now as everyone believes worst had already passed. Still the shock waves of Financial Tsunami is haunting many governments. It has started a new war among nations over exchange policies. There are two kind of exchange rate policies - 1. Fixed exchange rate which is controlled directly by the government . 2. Market driven exchange rate. Still in the later policy the government and central bank plays vital role.
Signs of the crisis :
Japan coming forward to stop the appreciation of its currency . The emerging markets like Brazil taking monetary steps to control and restrict FDI's. Benchmark in Indonesia and Philippines had hit record levels.
What has triggered the currency wars ?
There are mainly to camps developed countries led by us and developing countries led by China , India and Brazil. Each camp is blaming other for he crisis. The view point of developing countries-Us treasury and Fed is pumping large volume of currency in the market to trigger the growth in US economy. But since the confidence in US domestic market is very low especially because of the high rates of unemployment in US and under performance of the economy . Where as the developing country like China having a 2 digit growth rate and closely followed by India and Brazil. All these is making the emerging economies very attractive for the foreign Investment. The FDI flows in emerging economies are at record level. The crisis of 1999 which made the Asian giants to bleed is still fresh in memory. Excessive flow of dollar in the economy will cause the domestic currency to appreciate and it will lead to fall in export and the large inflation rate. The stock market , real estate and asset price are government bonds are sky rocketing and can lead to another bubble in emerging markets. The Asian crisis of 1998 had exposed the dangers of large volatile FDI inflows already.
Asian crisis 1998 - It all started as ASian MIRACLE model with huge FDI inflows which dramatically increased the asset prices. The economy got bubbled by the hot FDI inflows.High asset price later on caused the investors and companies to default on their credit and later on this created panic among the investors. Foreign investors started to take out huge volume from the Asian markets. This increased the pressure on domestic currency. Banks and government tried to uphold the exchange rates but finally they had to give . It caused major depreciation in the exchange rate . It made the foreign currency dominated liabilities substantially high in term of their domestic currencies leading to further collapse and bankruptcy. Final IMF had to come to rescue of Asian tigers. But the terms and condition of IMF bailout was very harsh.
As a result even today emerging economies are very cautious about appreciation of their currencies.
The other camp led by US argue that it is China who is responsible for global currency imbalances. It is China which is upholding the rate of its currency and hence creating the crisis.
In my opinion both US and China are the epicenter of this earthquake which is detrimental to emerging economies. US is pumping more money and China is not absorbing its share of global shock waves.
Who is winning the war ?
Presently both US and China are in comfortable positions. Emerging markets are going to be the worst hit by the war. China is able to keep it currency at constant rate against dollar and it has depreciated against Euro. But in the long everyone is going to lose.
Whats the solution ?
Signs of the crisis :
Japan coming forward to stop the appreciation of its currency . The emerging markets like Brazil taking monetary steps to control and restrict FDI's. Benchmark in Indonesia and Philippines had hit record levels.
What has triggered the currency wars ?
There are mainly to camps developed countries led by us and developing countries led by China , India and Brazil. Each camp is blaming other for he crisis. The view point of developing countries-Us treasury and Fed is pumping large volume of currency in the market to trigger the growth in US economy. But since the confidence in US domestic market is very low especially because of the high rates of unemployment in US and under performance of the economy . Where as the developing country like China having a 2 digit growth rate and closely followed by India and Brazil. All these is making the emerging economies very attractive for the foreign Investment. The FDI flows in emerging economies are at record level. The crisis of 1999 which made the Asian giants to bleed is still fresh in memory. Excessive flow of dollar in the economy will cause the domestic currency to appreciate and it will lead to fall in export and the large inflation rate. The stock market , real estate and asset price are government bonds are sky rocketing and can lead to another bubble in emerging markets. The Asian crisis of 1998 had exposed the dangers of large volatile FDI inflows already.
Asian crisis 1998 - It all started as ASian MIRACLE model with huge FDI inflows which dramatically increased the asset prices. The economy got bubbled by the hot FDI inflows.High asset price later on caused the investors and companies to default on their credit and later on this created panic among the investors. Foreign investors started to take out huge volume from the Asian markets. This increased the pressure on domestic currency. Banks and government tried to uphold the exchange rates but finally they had to give . It caused major depreciation in the exchange rate . It made the foreign currency dominated liabilities substantially high in term of their domestic currencies leading to further collapse and bankruptcy. Final IMF had to come to rescue of Asian tigers. But the terms and condition of IMF bailout was very harsh.
As a result even today emerging economies are very cautious about appreciation of their currencies.
The other camp led by US argue that it is China who is responsible for global currency imbalances. It is China which is upholding the rate of its currency and hence creating the crisis.
In my opinion both US and China are the epicenter of this earthquake which is detrimental to emerging economies. US is pumping more money and China is not absorbing its share of global shock waves.
Who is winning the war ?
Presently both US and China are in comfortable positions. Emerging markets are going to be the worst hit by the war. China is able to keep it currency at constant rate against dollar and it has depreciated against Euro. But in the long everyone is going to lose.
Whats the solution ?
There is no easy answer. But that, unfortunately, is a fact of life when the world has been living in such an unbalanced way for years. A rate hike in the United States might squash economic growth and leave the world facing another dip. A rapid China revaluation could price the country’s exporters out of the market and lead to widespread unemployment.A gradual but sustained revaluation of the yuan versus the dollar — combined with a halt to the dollar’s own depreciation — is the least bad way forward. Reforms in international institution like IMF,G-20 and World Bank is a huge step in right direction. These institutions need to represent the realities of present era. Greater voting right share and representation should be given to emerging economies . These institution can be the platform to find a middle amicable solution to such problem if and if the represent the realities of 21st Century.
Lets hope the next meeting of G_20 can bring some agreement on the exchange rates.
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