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Coal India seems to be pretty much range bound in 300-330 for next 2 months, it may start fresh up-move towards end of Jan or Feb 2011 after earnings report.
Coal India closed at approx. 312.75 today. Is it a good time to buy the stock for a 2-3 month period?
I believe once investor get clarity about Mining Bill, going for long-term is a good idea. Probably, below 260 is a good entry point; at least investing 50% can be considered. .
Mining bill may will be posted in budget session and I guess looking at what happened in winter session I am not sure whether it will be discussed in this session or not. My sense is that for this bill to get discussed in both parliaments and then finally to become a law might take some time at least a year. And there are chances of amendment in bill to what has been proposed now. So at least for a year I do not think mining bill will have any effect on the stock. Yes time and again when issue come in limelight there might be correction in the stock but three things will offset this 1. Higher coal prices 2. Capacity expansion both organic and inorganic ways 3. Efficiency . Also to be noted that there around 170 projects of Coal India which are pending for approval from environment ministry and 105 of them are awaiting for the second stage approval hence they may get approved in next 6-12 months. With all of this I believe it is very unlikely that stock would go below 300. I would be surprised if that happens. But you never know what may happen.
Here is what Coal India chairman said regarding mining bill issue
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1. basic understanding that we have is that it’s going to be 26% of the profit after tax in the previous year that will have to be spent in this year, which means essentially this will be tax deductible expenditure, which means net of tax impact is going to be 31-32% less. Based on the margins that we at this point of time, 26% of profits would translate into 6% of revenues which means basically a 6% price adjustment.
That means price hike to soak up the impact.
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2. The second point is that we are as on date incurring a lot of expenditure on these kind of issues. We do expect that there should be provision for a set off of those expenses against this provision. If that set off is allowed then the effect is going to be marginal, it should be manageable. If the set off is not allowed, in that case we definitely require price revision. I don’t see any reason why we shouldn’t be able to enforce that.
That means for particular mine if profit compensation is to be provided for affected people then this will be for certain period only like 1 year or 2 year.But if compensation is indefinite then he says they will keep there prices up indefinitely.But later scenario is highly unlikely.
That means for particular mine if profit compensation is to be provided for affected people then this will be for certain period only like 1 year or 2 year.
I think the chairman is totally wrong on both issues.
The profits will have to be shared for as long as the mining activities go on.
What the bill intends to do is to make the tribals 26% owners of the mines in their respective areas.
Instead of giving 26% equity to the tribals, the companies will have to give 26% of the profits to them.
The companies won't be allowed to show this 26% shared-profit as an expense.
Distribution of profits to shareholders of a company is not an expense.
Actually, that's what industrialists are asking for. They want to show it as an expense.
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The Tatas, Jindals and others have also criticised the proposed levy and asked the government not to charge it as a separate tax, saying that social obligation is a part of the operating cost of companies.
I expect CAGR of 15% for Coal India for next two years from current level, so I am treating it more like high return FD for next couple of years. I may exit stock after couple of years.
I have 327 shares of coal india at an average price of Rs.270. I intend to acquire more with a long-term plan of 5 years. I invested with an idea that Coal India is a debt free company which is looking to expand across the world. Coal demand in India an China is increasing exponentially. But the only problem will be the operations part and government policies which might hamper the growth i.e. the company might not grow like a private sector one. But it's only a matter of time before government changes its mining policies to meet the growing demands in energy consumption unless there is a miraculous occurrence of another alternative source of energy. Although research is still going on, demand for coal will still be there is my understanding. Any thoughts?
CIL raises prices, effective from 27th Feb. This would generate an additional revenue of Rs.650 crore in 2010-11 and Rs. 6200 Crore in 2011-12.
It is up heavily today. Till now it has made a high of 326.95, more than 10%. How do you people see it over the next few days? And what about today, is it okay to short it at around 324?
CIL raises prices, effective from 27th Feb. This would generate an additional revenue of Rs.650 crore in 2010-11 and Rs. 6200 Crore in 2011-12.
It is up heavily today. Till now it has made a high of 326.95, more than 10%. How do you people see it over the next few days? And what about today, is it okay to short it at around 324?
It is too risky to trade today. Market can go any way.
If the finance minister says something about allotting additional coal blocks etc, Coal India may go up further.
Even if you want to short, keep a proper stop-loss.
Should you be laughing all the way to bank now or wait for more? .
I do (199+50 shares in 2 accounts),But have kept in forgot category.
But whenever I see my portfolio and it's positiveness feels good but then all of a sudden I see this share and comes to know now it weights 40% of my portfolio now then I feel a little worried.
Anyways less than in a year it is already giving 80% return. But at an average cagr of 25-26% i want it to grow (55k investment for at-least 20 years).
But being a public sector company I doubt ill get returns like Wipro, Infosys or others gave once they got listed in very long term.
Coal India (at Rs. 409) is trading at 13-14 times FY 2014 earnings, without discounting any earnings shock for the new mining bill.
Even tough the stock is a market favorite right now, I am skeptical about the stock at current price.
I think Coal India is getting preference over other large caps because in case of Coal India, growth is assured and so the market is willing to pay a hefty premium for it.
How are the prospects for super long term say 10-20 years?
I don't expect any strong selling in Coal India from current levels (355).
The market has now adjusted to the reality of the Mining Bill.
The stock has strong support in the 340-355 range and I expect this range to hold for the next few days.
For the super long term, Coal India is surely a good investment. As the company is selling coal below market price, Coal India's long term revenues will exhibit much more resilience to economic downturns than many other listed companies.
At current prices, the market is already discounting next 2-3 years of earnings growth and so I am not sure where the stock will go in the next 1-2 years.
If market remains buoyant, the stock may appreciate a bit and go above 400 again. If market corrects, Coal India may drift down to 300-320.
In short, for an investor with 1-2 year horizon, there is no value in this stock, but for someone who is willing to hold for 5 years and beyond, Coal India is good pick.
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I expect analysts to downgrade eps targets for Coal India by around 15% because of the mining bill.
Two factors which can help Coal India to partially absorb the 26% hit:
1. The company can increase prices marginally to absorb some of the losses due to the new mining bill. (The government won't allow any sharp increase in prices).
2. Coal India is already spending some money on its CSR initiatives ("Corporate Social Responsibility"). Once Coal India starts distributing 26% of its profits to affected people, it is likely to bring down its CSR spending to almost zero.
I don't expect any strong selling in Coal India from current levels (355).
The market has now adjusted to the reality of the Mining Bill.
The stock has strong support in the 340-355 range and I expect this range to hold for the next few days.
For the super long term, Coal India is surely a good investment. As the company is selling coal below market price, Coal India's long term revenues will exhibit much more resilience to economic downturns than many other listed companies.
At current prices, the market is already discounting next 2-3 years of earnings growth and so I am not sure where the stock will go in the next 1-2 years.
If market remains buoyant, the stock may appreciate a bit and go above 400 again. If market corrects, Coal India may drift down to 300-320.
In short, for an investor with 1-2 year horizon, there is no value in this stock, but for someone who is willing to hold for 5 years and beyond, Coal India is good pick.
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I expect analysts to downgrade eps targets for Coal India by around 15% because of the mining bill.
Two factors which can help Coal India to partially absorb the 26% hit:
1. The company can increase prices marginally to absorb some of the losses due to the new mining bill. (The government won't allow any sharp increase in prices).
2. Coal India is already spending some money on its CSR initiatives ("Corporate Social Responsibility"). Once Coal India starts distributing 26% of its profits to affected people, it is likely to bring down its CSR spending to almost zero.
Yes, the correction is due to the new mining bill. Someone wishing to enter for long term should try to accumulate at around 340 levels.
I forgot to add in terms of market capitalization it became number one.
I guess there is something because everywhere i see a target of 450 by big brokers. But i feel in September again the markets might go down and opportunity of 375 or low up to 340 might touch. Regarding it going much lower than news some sort of scam like DLF will pull it down or some agitation against it.Then one should enter. Just personal take (no technical analysis done)
Now it became number 1 will it be part of index in NSE?
The problem with Coal India is the low free float of 10%, so even at 4.5 Lakh Cr it gets insignificant weight in the Sensex compared to a RIL or ICICI Bank.
It is just a matter of time. Even if it doesn't remain number 1, it will be included in Nifty sooner or later.
The reason i am asking because once it enters index funds will start investing in it which will furthur reduce the free floating stocks into large funds.
Hence furthur price rise.
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Originally Posted by Prudent_Investor
The problem with Coal India is the low free float of 10%, so even at 4.5 Lakh Cr it gets insignificant weight in the Sensex compared to a RIL or ICICI Bank.
4.5 lakh crore? You mean both sensex and nifty because on bse i see 2.5 lakh crore and reliance 2.47 lakh crores.
4.5 lakh crore? You mean both sensex and nifty because on bse i see 2.5 lakh crore and reliance 2.47 lakh crores.
Sorry for the typo, I meant 2.5 lakh cr. What I really meant is the inability of Coal India in moving the Sensex. See this chart
While RIL and ICICI have major weights of 9.82 and 7.58 due to their greater free floats, a low free float of 10% reduces CIL's weight in the index to a mere 1.82. Hence despite being the largest m-cap company it can't effect the Sensex in a way an ICICI or a Reliance can.
Sorry for the typo, I meant 2.5 lakh cr. What I really meant is the inability of Coal India in moving the Sensex. See this chart
While RIL and ICICI have major weights of 9.82 and 7.58 due to their greater free floats, a low free float of 10% reduces CIL's weight in the index to a mere 1.82. Hence despite being the largest m-cap company it can't effect the Sensex in a way an ICICI or a Reliance can.
Hmm.That was a new concept to me.Thanks so if RIL performs badly in market and Sensex goes down necessarily it doesn't mean COAL India too will perform bad.
Note::Also for people who wanted to know what a free-float is while Googling I came across this pdf. Good for improving fundamentals.
Thanks so if RIL performs badly in market and Sensex goes down necessarily it doesn't mean COAL India too will perform bad.
No.
Low free-float of a stock (in Rupees) means low weightage in a free-float index.
A stock with low weightage won't have much influence on the index.
What you are talking about is influence of Sensex on Coal India.
What Prudent_Investor is talking about is influence of Coal India on the Sensex.
Suppose Coal India is included in the Sensex. As Coal India's free float is much lower than that of Reliance, Reliance will have much more influence on the Sensex.
A 10% downfall in RIL's price will bring down Sensex much more than a 10% fall in Coal India's price.
Low free-float of a stock (in Rupees) means low weightage in a free-float index.
A stock with low weightage won't have much influence on the index.
What you are talking about is influence of Sensex on Coal India.
What Prudent_Investor is talking about is influence of Coal India on the Sensex.
Suppose Coal India is included in the Sensex. As Coal India's free float is much lower than that of Reliance, Reliance will have much more influence on the Sensex.
A 10% downfall in RIL's price will bring down Sensex much more than a 10% fall in Coal India's price.
Oh I see. Thanks for correcting. New concept I guess will take sometime to grasp. Though got the basics cleared.
Coal India
Mining Bill Uncertainty
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