In an interview to CNBC-TV18, Chintan Mehta, Metal Analyst at Sunidhi Securities shares his views on the ongoing coal auctions. Below is the transcript of Chintan Mehta’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Sonia: What is your view on Sesa-Sterlite, would you advise buying that company because they have secured coal for Balco now?
A: Not exactly we will subscribe a buy because this kind of quantities wouldn’t suffice them. Even the bids what they have offered have been matching what they have been procuring from e-auctions. So, nonetheless it is difficult to tell if any kind of savings per se will occur from this kind of bids what they have made. Difficult to say that there could be margin expansion because of securing this coal blocks because the bids seems to be a bit aggressive then what we factored in.
Latha: What about Jindal Steel and Power (JSPL), I thought their bid was reasonable and they have not bid in places where the bidding was aggressive?
A: JSPL stands out to be the more sensible player out of this auction. However JPL, the power company, they bid Rs 108 where we saw other companies going abroad and foregoing the fuel cost and bidding at aggressive Rs 400,000-700,000. However, nonetheless what happened with that steel part of operations, they have lost both the blocks for the steel operations. So, on one hand when they were able to secure the coal block for the power operations, they lost out on steel operations which could be a bit of worry. We will wait till what happens for the next auction Schedule-III begins.
Sonia: Would you buy Hindalco, that one has won multiple coal blocks but as you said the bidding over there was very aggressive as well so what would you do with that one?
A: I will continue to hold. The beauty with all these aluminium companies or cement companies is that we have to wait for their commodity cycle to improve a bit or coal prices to improve. Suppose they have bid for Rs 500-1000 aggressively what we had factored in, that translates around Rs 5000-7000 per tonne which can be mitigated by increasing the share of value added products or by per se LME improves. So, what we understand is that the LME based companies like Balco and Hindalco wouldn’t take much of a hit but definitely steel companies what we understand would be taken a bit negative.
Latha: Any of the smaller companies Sunflag, Monnet Ispat, Jayaswal Neco – the whole bunch of them, anything you track and anything you like?
A: We track Prakash, Sarda and Godawari as well but the point is that they have all virtually have lost the coal blocks and now they are in level playing field where they have to get it from e-auction.
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