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“Coal in e-auctions may cost companies about Rs 2,000-2,500 a tonne against Rs 700-800 a tonne for captive coal,”said an analyst with a foreign brokerage.
The apex court on Wednesday cancelled almost all the 218 captive coal blocks allotted to government and private companies. Of the 46 blocks that are being mined or about to be, 42 were cancelled. These blocks will be taken over by Coal India till they are sold and the state-owned company will e-auction coal from these mines.
The total penalty on steel companies with captive coal supply is about Rs 2,082.5 crore, excluding Jindal Steel & Power Ltd.
“Assuming that captive coal is replaced by auctioned coal, we see the Ebitda (earnings before interest, taxes, depreciation, and amortisation) of Indian Metal and Ferro Alloys hit by 18 per cent in 2015-16 and 24 per cent in 2016-17,” said Giriraj Daga, senior analyst with Nirmal Bang Securities.
Not all steel companies, however, will be affected by the ruling. JSW Steel, for instance, imports coal for its 300 Mw power plant at Bellary in Karnataka. When the coal blocks are put up for auction, the company could bid if factors like location and freight cost are favourable. “There is no immediate upside for JSW, but at least there is no downside,” said Daga.
Most of Tata Steel’s coal mines were allocated before 1993 and the Kotre-Basantpur and Pachmo mines in Jharkhand, allotted in 2005, are not being mined. So the verdict does not have an immediate impact on the company.
“Importing coal is one option but it depends on where the plant is. In Chhattisgarh and Jharkhand, where there are several sponge iron plants, it is best to look for auctioned coal or simply cut production till re-allocation of coal blocks takes place,” Daga said.
Both Monnet Ispat and Prakash Industries have plants in Chattisgarh.
"Imported coal may cost about $75-$80 per tonne as against the e-auctioned which in dollar terms will come to $55 per tonne. So depending on where the plant is located, one needs to do the math," said an analyst with the foreign brokerage.
Though the de-allocation of coal blocks has disappointed companies, analysts are of the view, the phase may be short-lived if the government acts speedy.
There is a six month transition period given by the court and then from April 1, 2015 onwards, all operational coal blocks will be taken over by the government, which will re-auction them through a competitive bidding process. If the government act fast and starts this re-auction process at the earliest, companies will have not much to lose, they said.
"All approvals and clearances for operational coal blocks is in place and so once re-allocated companies can immediately start work. So the situation can be within control if the government acts fast," said an analyst with a local brokerage.
