Coal India - Black Diamond

protrade

Well-Known Member
#1
In 2014, India was the largest importer of Coal in the world. Production inefficiency, unavailability of rakes, etc lowered the levels of production significantly.

Its just been 2 years, and today, India is looking to export coal - a transformation that has dramatically shaken up the coal industry.

Over 40% of the costs of Coal India go towards Man power, but with the retirement of a large portion of its workforce over the last 3 years, and the fact that these workers were replaced by younger, lower salary workers, plus a lot of mechanization means that productivity per worker for Coal India is expected to DOUBLE within the next 18 months. This is a sort of transformation one usually expects from a small nimble company operating in sectors like IT, etc - not from a Public Sector behemoth operating in commodity space!

For a long time, there was the overhang of SEBI's requirement to have maximum 75% government ownership in any PSU. This meant that there would need to be stake sales by the government to lower its stake in Coal India from the current almost 80%. However, Coal India and the Government managed to work around this overhang in a very innovative way. Coal India announced a buy back of shares amounting to 1.7% of shares outstanding at a price of Rs 335/share. At that price, it makes zero sense for investors to participate in the buyback, so it is almost entirely available to the government.

Considering the huge dividend payouts by Coal India, it actually makes sense for them to buyback the shares and extinguish them, rather than keep the shares around!

The scale of transformation is actually way beyond the imagination and knowledge of the markets. Coal India is embarking on massive CSR programs to rejuvenate the massive amounts of land it possesses that have been damaged by mining. Techniques like Hydroponic agriculture allow them to get value from this damaged land, plus also generate employment for the large numbers of ex-employees and their families. This is becoming a powerful way to lower their overall wage costs, while repairing environment damage, and using its CSR obligations in a powerful way!

In an environment of falling interest rates, the high dividend yield from Coal India makes it an especially attractive stock. Very soon, Coal India will also be in a position to leverage technologies like Clean Coal to make coal more attractive as a source of energy that doesnt damage the environment.
 

protrade

Well-Known Member
#2
Coal is waking up from a 4-year slumber. There is between a 40-70% chance of La Nina weather patterns - and last time around, La Nina flooded mines in Indonesia and Australia.

Coal could shoot up over 20% in price if La Nina sets in.

This is perfect timing to get into Coal India stock - just as the company ramps up production. This is a solid power play.

Generally, coal would never be considered a hot space - but Bloomberg actually calls this one of the hottest commodities!!

http://www.bloomberg.com/news/artic...he-grave-to-become-one-of-hottest-commodities
 

mastermind007

Well-Known Member
#3
protrade

Just simple technical read from the COALINDIA EOD NSE chart (and bit of Lance Begg stuff), it seems that COALINDIA has entered into a range of 325** to 340*** and price will continue to drift about within this range until all the big players are done filling up their buckets.

I believe its Result day was today and it failed to make any serious impact on the price.

Also, how to find out what is final outcome of buy-back scheme?

Is there any site/resource that can tell how many shares are held by the "President of India"?

I think Govt has encashed off its holding under the COAL-INDIA buy-back scheme that shut doors on 8 Sep.
 

protrade

Well-Known Member
#4
The last figure I remember seeing is that GoI holds over 79% in Coal India. Of this, almost 1.5% should be sold in the ongoing buyback. The price of the buyback is such that it makes zero sense for anyone else to sell. Stock was trading higher just weeks back.

CIL is great as a defensive play. With high dividend yield, it is a great buffer on days like today when market will take a beating. And all the fundamentals also point to a bright future for this company.

The biggest value driver for CIL is that a large number of its staff retire over next 3 years, and will be replaced by lower cost younger workers, plus a whole lot of mechanization. In India, this is obviously going to cause unrest - as unions realize they are getting weaker! That hurt the results last quarter, but nothing more than expected.
 

Purushotham

Well-Known Member
#5
The last figure I remember seeing is that GoI holds over 79% in Coal India. Of this, almost 1.5% should be sold in the ongoing buyback. The price of the buyback is such that it makes zero sense for anyone else to sell. Stock was trading higher just weeks back.

CIL is great as a defensive play. With high dividend yield, it is a great buffer on days like today when market will take a beating. And all the fundamentals also point to a bright future for this company.

The biggest value driver for CIL is that a large number of its staff retire over next 3 years, and will be replaced by lower cost younger workers, plus a whole lot of mechanization. In India, this is obviously going to cause unrest - as unions realize they are getting weaker! That hurt the results last quarter, but nothing more than expected.
Above all the stock is quoting @ yesterday close, in spite of nifty down by 1.5%.

:clap::clap:
 

protrade

Well-Known Member
#8
What if Govt allows private and foreign companies in this area.Soon they will crush the monoply and take all the profits.
Coal India is actually losing out because their enhanced efficiency and enhanced production has hurt the premiums they can get on the e-auctions. The premium they can get dropped from over 40% to under 20%. This is the reason in the last quarter, Coal India decided to get into exports.

You cannot simply set up a factory and produce coal - you have to mine it out of the ground. All the known mines are already allocated, and Coal India is simply the largest player in the space.

Coal is *by far* the cheapest source of energy - at just over Rs 1500 per tonne. And there are already technologies that address the dirty aspects of coal. Earlier thermal power plants used to have costs dealing with fly ash, today they get paid for the fly ash!

Coal India has so much inefficiency because of excess labour, it will benefit hugely from retirement of older workers and replacement of these with younger workers, and even mechanization. All the recent union troubles of Coal India are entirely because unions are not comfortable with this trend. But this is an unstoppable trend. These unions ensure that workers are far less productive than they can be.

But there are multiple hidden stories in Coal India that people simply don't know about - Coal India gets multiple times more value by hydroponic and other farming methods in its damaged lands, than it even gets from coal! They have just begun to scratch the surface on this now - in 2-3 years, this will be generating enough to keep the unions happy!
 

protrade

Well-Known Member
#10
Rather it could be a Blood Diamond!
Anuj, if you think its a Blood Diamond, you are better off not investing in this name - or even better shorting this name. I beg to differ - I think this is a long term story, with a lot of upside just from productivity gains. And its current woes are also because its unions know what is coming.

This is the most clear cut case of a company that will benefit once the unproductive unionized laborers are out, and mechanization and younger labourers replace them!
 

Similar threads

Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Name:Phone:
Email:City:
State:
Are you a day trader?