Moneycontrol Bureau
Though traders remained busy buying shares of Coal India (stock up 5 percent intraday) Monday on price hike, analysts say that it is not enough to offset potential wage increases. The government-run company has announced a price hike of 6.29 percent, which may fetch an additional Rs 3230 crore in sales in FY17. It also cut the price differential for the non-regulated sector to 20 percent from 35 percent above the regulated sector.
Goldman Sachs says that the Rs 3230 crore additional sales from price hike is lower than what will be needed to offset effect of five yearly wage negotiations due in FY17. It says that with the price hike, it would imply 13 percent wage increase in FY17 but wage hikes are likely to be higher going by past negotiations. Goldman Sachs factors Rs 8400 crore (30 percent) in incremental wage costs in FY17.
The brokerage firm has retained sell rating on the stock with a target price of Rs 246 per share.
JP Morgan estimates that the price hike are muted for the lower grade coals at 1-6 percent, while for the higher grades the cut is 14-29 percent. In balance, the price hike would impact the power sector relatively more compared to the non power sector. "The steep hike for the power sector has been somewhat lost in the overall scheme given the pricing pressure in non-power. There is no update yet on the price changes for washery grade/coking coal. CIL is also starting the auction process for linkages for the non power sector, with the first linkagefor the sponge iron sector," it says in a report. It has an underweight rating with a target price of Rs 330 per share.
However, Credit Suisse feels price hike could drive a re-rating. It has an outperform rating on the stock.
Coal India has reported a marginal rise in consolidated net profit at Rs.4,247.93 crore for January-March quarter while total income increased to Rs 21,402.75 crore. Production was up at 165.24 million tonnes from 151.86 MT in the year-ago period.At 16:00 hrs Coal India was quoting at Rs 292.05, up Rs 10.70, or 3.80 percent on the BSE. Follow @NasrinzStory
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