From the start of this March month we could see that all coal based companies are getting focus in the markets.The obvious reason must be the recent Policy and Strategy Paper released by the Ministry of Coal. The government is trying to push coal production in order to reduce imports of coal. It seems like,atleast for next two years Thermal power would be utilized for meeting the excess power needs. The power demand is growing at a very faster rate. Last year the power demand surpassed anticipated increase in demand. So we could see that many fund managers and investors,who are very bullish on power sector,give their first preference to companies like NTPC and Coal India ltd.
Even Tata power is also a fundamentally strong and a growing company. It is also a good investment option. We could also see that all those investors who prefer power stocks would definitely like to have Tata Power in their portfolio. Even I hold shares of Tata Power! But I donot mean that you should also buy it, you should do your own research before purchasing the shares of any company.
Some investors give their first priority to NTPC over Tata Power. The reason is simple that the government is trying to boost up coal production and meet excess power demand using thermal power. So it will directly benefit companies dealing in cement, steel,power,etc, which use coal to undertake their production activities.
Industrial Outlook:-
The government has launched the National Coal Logistics Policy. It is expected that the coal demand would surge upto 1.5 billion tonnes [bt] by 2030,which is presently at 980 million tonnes [mt]. The main aim is to reduce the logistics cost by increasing rail network through First Mile Connectivity [FMC] . This allows an annual cost saving of Rs. 21,000 crore. Further, it also reduces air pollution,reduces carbon emission and also allows saving of average turnaround time of wagons by 10%.
- Strategy Paper on coal import substitution:-
The Strategy Paper has been prepared by an Inter Ministeral Committee [IMC]. This shows the measures import substitution of coal and other recommendations made by the IMC. It also contains domestic coal production report, survey and projections. This paper is available in the official website of Ministry of Coal.
Coal India ltd [CIL]:-
Now let us look into the business of Coal India ltd . CIL is a Maharatna company.
The main business of the company is mining and production of coal. It also operates coal washeries. Coal washing is the process of removal of impurities from coal.
This is the only company that has statutory right [right given by the law] to mine and distribute coal in India.
It supplies to steel,cement, power industries and many other industries like fertilizers,etc.
CIL is the largest producer of coal in the world.
Fundamentals of the company:
ROCE: 70.5%
ROE: 56.0%
Stock P/E: 8.97
Debt-to-equity: 0.09
At this price the company looks attractive. All these new coal related policies directly benefit CIL. Since the logistics are improved for coal distribution, it reduces the cost of logistics to greater extent and thereby, increase the profits. The solar energy is more efficient, however in order to meet the increasing power demand it is more practical to use thermal energy. We [India] already have a well established thermal power generation and transmission facility. But in case of solar energy ,it is under the developing stage. Companies like Tata Power are increasing their power generation using solar.
So it is clear that atleast for next two years we need thermal energy to meet the increasing power demand. By the time we might have a comparatively well established solar power generation and transmission facilities in the country.
Hence it is clearly visible that atleast for next two years this company has its business. Also when it is said that there is an increasing demand for power it sometimes even comes above the anticipated value.
National Thermal Power Corporation [NTPC]:
The main business of the company is generation and sale of bulk power to state utilities. The other businesses of the company include consultation,project management and supervision, energy trading, oil&gas exploration and coal mining.
This company is the largest power generation company in India. Though it mainly involved in coal base power plants, it also has gas plants,hydro plants and also plants based on other renewable sources.
In order to achieve a sustainable future it is indeed important to reduce carbon emissions. It is possible to some extent by using solar power or power generation using such other renewable resources. This company also is slowly shifting from thermal to green energy.
It is said that it is not practical to have the entire supply of power with only solar in 2 years.
However we understand that green energy is going to be the future. So many power companies are adopting green energy.
Fundamentals of the company:
ROCE: 9.83%
ROE: 12.0%
Stock P/E: 15.9
Debt to equity: 1.45
These types of companies are asset intensive. So looking at debt to equity doesn't make sense while analyzing these companies.
This company is a fundamentally strong company.
Conclusion:
All these have been said based on news,reports, government policies and opinions of various investors. The projections given here need not come true.
So dear readers, do your own research or ask to you SEBI registered stock advisor before buying any stock.
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