Latest Politics News and Updates: Coal blocks rally

Wednesday, September 24, 2014

Coal blocks rally - Financial Express

fe Bureau | Mumbai | Published: Sep 25 2014, 01:53 IST

Sep 25 2014, 01:53 IST

SummaryMining, power & bank stocks tumble after SC ruling; JSPL biggest loser

Privately-held metal and mining companies, along with power generation companies and public sector banks, saw tremendous selling pressure on Wednesday after the Supreme Court deallocated 214 out of 218 coal blocks given since 1993. The court also said that "the allottees of the coal blocks other than those covered by the judgment and the four coal blocks covered by this order must pay an amount of Rs 295 per metric tonne of�coal extracted as an additional levy".

Jindal Steel & Power's (JSPL) penalty is pegged at Rs 3,000 crore and the company will have to bear additional costs to win the mines if the government decides to auction the blocks again, said Rakesh Arora, MD & head of research, Macquarie Capital Securities, in a TV interaction.

JSPL, whose projects are fired by coal from their own mines, plunged 10% to a 13-month low after the SC verdict.

BNP Parisbas, in a research note, said: �If JSPL blocks get deallocated and, assuming they get assigned to Coal India, which, in turn, sells coal back to Tamnar I at linkage prices, we estimate that the NPV impact for JSPL would be a negative Rs 90 per share and the earnings impacts for FY15e and FY16e would be 14.3% and 14%. The Utkal B1 block (not factored in our estimates) may also get deallocated, which would undermine long-term cost improvement potential at its Angul Steel Plant.�

JSPL accounts for 6 million tonne of the total 27 million tonne produced from operational captive blocks. In FY14, about 490 million tonne of coal consumed by the power sector.

Swiss global financial services and investment banking firm UBS said JSPL's entire domestic coal block assets are now under risk after the SC verdict. �As such, replacing captive production with coal purchased at market price could impact JSPL FY15e and FY16e EPS estimates by 36 and 30%, respectively (valuation hit would be ~30%),� said Pankaj Sharma, analyst, UBS.

Other losers on the day included Usha Martin (-10.03%), Jayaswal Neco Industries (-7.64%), Monnet Ispat Energy (-6.58%), GMR Infra (-10.55%) Prakash Industries (-8.2%), Prism Cement (-2.1%), Steel Authority of India (-2.89%), Sarda Energy Minerals (-1.63%) and Hindalco (-0.5%).

The sharp fall in metal and power companies led to a domino effect on public sector banks out of fear that the loans given to companies may turn into NPAs as existing/under-construction projects may be rendered economically unviable.

Cancellation of permits risks at least $47