- Supreme Court's coal block ruling may have big economic impact, cost India over $3 bnBSE Sensex rises 6 pts, closes at all-time high; NSE Nifty continues retreat from record highSupreme Court decision on coal blocks likely to create overhang: BarclaysSC coal ruling lacks clarity on commercial use, say analysts
After the Supreme Court deemed all coal blocks allocated since 1993 illegal, experts say that Jindal Steel, Hindalco and Sesa Sterlite could be the worst hit.
CLSA said in a report that the deallocation of coal blocks would hurt profitability of Jindal Steel and Power (JSPL). “The current producing coal blocks of JSPL were allocated to the company in 1996 and 1998. Deallocation of the existing coal blocks will hurt profitability levels of JSPL’s existing steel and power businesses. In addition, this reduces the probability of the Utkal B1 coal block, which lowers the longer-term profitability outlook for JSPL’s greenfield steel plant at Angul in Orissa,” the Hong-Kong based investment bank said in a note. The stock ended 6.16% lower at R237.55 on the BSE on Tuesday.
On Monday, the Supreme Court said that it would address the legal consequences of its ruling on September 1.
Hindalco could potentially miss out on the Mahan coal mine, according to CLSA. “This judgment substantially reduces the probability of Hindalco getting the Mahan coal mine for the Mahan smelter or the Talabira-II coal mine for the Aditya smelter, which lowers the long-term profitability outlook for the India business of Hindalco,” the analysts said.
“Our FY17 estimates for Hindalco factor in ~25% of the coal requirement for the Mahan smelter coming in from the captive Mahan coal block. So, there will be a slight downside to our FY17 EPS estimate for Hindalco if the Mahan coal block get cancelled. ~25% of Hindalco’s existing aluminium output (from Hirakud smelter) is backed with captive coal from the Talabira I coal mine, which was allocated to Hindalco in 1994. Deallocation of this mine will impact profitability of Hindalco’s existing operations,” CLSA added.
The Hindalco scrip bounced back on Tuesday with gains of 3.64% after correcting nearly 10% in Monday’s trade.
Meanwhile, Sesa Sterlite ended flat on Tuesday after losing 3.89% on Monday. CLSA says SC’s ruling could impact Balco, subsidiary of Sesa Sterlite. “This judgment means that the probability of Balco getting the mining lease signed for its coal mine reduces substantially. This will impact future profitability of Sesa Sterlite’s aluminium business. Our estimates were not factoring in any benefit from the captive coal mine for Balco and as such our EPS estimates will stay unchanged with this development,” CLSA said.