Reforms Unlikely To Impact Coal India Anytime Soon, Say Brokerages

The fourth tranche of government’s Covid-19 package focused on mining reforms and allowing private companies into coal mining, something that was announced earlier as well.

Most brokerages, however, said while reforms are aimed at ending monopoly of Coal India Ltd., that’s unlikely to happen in the near term. Moreover, Rs 50,000 crore investment to augment coal transportation infrastructure will only improve volumes of the state-run miner, they said.

According to the presentation released while Finance Minister Nirmala Sitharaman announced the measures:

• Commercial mining of coal allowed, with 50 blocks to be offered.
• Entry norms will be liberalised; no eligibility conditions, sole consideration being auction value.
• To be offered to private companies on revenue sharing basis in place of fixed cost.
• Investment of Rs 50,000 crore on augmentation of evacuation infrastructure.
• Relief of Rs 5,000 crore for Coal India customers—by offering concession in commercial terms in two ways: reduced reserve price in auction for non-power customers; and easier credit terms.
  
• Coal gasification/liquefaction to be incentivised through rebate in revenue share.
• Coal bed methane extraction rights to be auctioned from Coal India’s coal mines.

Also Read: Coal Reforms: Turning Intent Into Action

Here’s what brokerages have to say:

Edelweiss Securities

• Commercial coal mining is unlikely to impact Coal India.
• Investment of Rs 50,000 crore to help Coal India ramp up its volumes in the medium to long term.
• Concession of Rs 5,000 crore to impact profitability and beneficial for non-power producers.
• Higher social cost likely to be offset by higher volumes.

Emkay Global

• The announcement is unlikely to have any meaningful impact on Coal India
• Processes are time consuming
• Do not expect any immediate interest.
• Commercial mining difficult given the global economic slowdown and existing regulatory hurdles.
• Commercial coal mining might be a difficult proposition in India
• Coal India's FY24 target of 1 billion tonnes, if achieved, will be good enough to meet domestic demand

IDBI Capital

• Coal India will see increased competition and will have no monopoly.
• Steps under ease of doing business to remove operational inefficiencies.
• To reduce coal import and increased self-reliance.

Morgan Stanley

• Measures to lead improved production in the country.
• Improved production subject to timely execution.
• Key beneficiaries will be end users such as steel, cement and aluminium, especially for captive power plants.