Coal India down 1% ahead of board meet

Written by fe Bureau | Mumbai | Updated: Oct 9 2013, 08:04am hrs
The Coal India (CIL) share ended weak for the second consecutive session on Tuesday, after losing over 3% on Monday on reports the board will approve the government's decision to dilute 5% stake in the company. The board meeting is scheduled for Wednesday.

The scrip ended the day at Rs 296.55 on the BSE, down R3.55, or 1.18%, from the previous close. In the last two days, the stock has declined nearly 4.2% with over 1.02 crore shares exchanging hands on the BSE and the NSE. In the last one month, the combined average daily volume in CIL stood at 31.96 lakh shares.

Wholesale Price

Experts say the stock is likely to remain under pressure over the near-to-medium term due to poor operational show as well as the disinvestment overhang, despite the recent price hike and signing of new fuel-supply agreements (FSAs). For instance, US-based financial services firm Morgan Stanley on Tuesday cut its price target to R396 per share (earlier R415), further stating that offer-for-sale remains the near-term deterrent for the stock.

Last week, Religare downgraded CIL to hold from buy due to limited upside potential. The brokerage also expects cost pressures to cap profitability over FY14e/FY15e, even as the company appears to be on track and meet production estimates for FY14e. Two more brokerage firms Edelweiss and Centrum had recently cut their earnings estimates and price targets on the stock on similar grounds.

The stock has underperformed benchmark indices since the start of CY13. Bloomberg data shows, the stock has given year-to-date (YTD) returns of -16.5% compared with +2.9% to that of the 30-share benchmark sensex.

Interestingly, institutional investors marginally raised their stake in CIL during the three months ended September 2013. Exchange data show FIIs now own 5.51% of the total CIL shares, up 0.16 percentage points from the previous quarter, whereas holding of domestic institutional investors (DIIs) has increased 0.04 percentage points to 2.34% of the total shares in the previous quarter.

The government is relying heavily on CIL to meet its FY14 disinvestment target of R40,000 crore. So far, the exchequer has garnered only R1,300 crore by selling stake in six public sector companies Hindustan Copper, MMTC, National Fertilizers, Neyveli Lignite, STC, and ITDC.

The governments proposal to sell 5% stake in the company has attracted strong opposition from the workers union. In the light of the current situation, the Centre is of the view that a share buyback by CIL may be a more palatable option for the workers' union as it does not involve any transfer of shares to outsiders. Data show CIL has the highest cash reserve of about R62,000 crore among all PSUs.