Wednesday, January 15, 2014

Killing a goose called ‘Coal India Ltd’, and everyone is happy to join in this feast

Anyone heard the story of a farmer killing his goose, which give golden eggs, to make some quick bucks? Till now I heard the story only, now GoI showed me the same in action as well.

Protagonist in this story is CIL (commonly known as Coal India). This maharatna company, 90% owned by GoI, is the largest producer of Coal in the world.

Before going further to this interesting – tragic for CIL – story, let me give you some facts.

Current Price of Coal Indian in NSE – 288.9/share (Jan 14/2014).
Total Income in 2013 – 76,555.5 Crore
Operating Profit – 18,083.63 Crore.
Reported Net Profit – 17,356.36 Crore.

Lets come back to GoI’s position. Government had an ambitious plan to divest her stakes in various PSUs and raise 40,000Cr INR. Due to multiple economic reasons and GoI’s general inability to do right things at right time, this didn’t happen.

Now only a few months left for the closure of this financial year. Now its not possible to sell the shares and meet the target. However, to meet the deficit target government needs the money. So government did the easy thing to make money – find a way to move cash reserves sitting in PSUs accounts to government accounts. The magical word here is ‘dividends’. Many central government PSUs – even though inefficient – have huge cash reserves. Thanks to their days of monopoly and inability to invest the same.

However in the case of CIL, it went to the extreme. Special dividend from CIL to GoI is 29 INR for a share which value 290 INR. In short CIL has to spend 18,000 crore. Out of that 16,200 will go to government treasury. Note that 18,000 crore is more than that of company’s reported net profit (consolidated) for the year ended in March 2013.

“The total out-go from the company would be around Rs18,317.46 crore out of which Government of India who holds 90% of company’s shares would get Rs 16,485.71 crore,” CIL CMD S Narasing Rao…
Beside, government would also get dividend distribution tax of Rs 3,113.05 crore from CIL and its subsidiaries…In 2012-13, Coal India (CIL) had paid a total dividend of Rs 8,842.91 crore to the government.” – Business Standard.

CIL is already sitting over a huge cash reserve. According to some reports it is more than 50,000 Crores. Which finance minister can resist the temptation? Government’s argument is simple; if the company is not going to invest – by the way big investment decisions requires government approval and for getting that approval company need a strong management – there is no point of holding that much amount of cash.

CIL I in a tragic position. This company, even though a monopoly in Indian market, doesn’t have much control over the pricing of their products. On top of that CIL is hardly known for efficiency. Recently NTPC accused CIL of adding boulders to the coal supplied by CIL to NTPC owned power plants. According to BS report, in this year production increased by just 3% and dispatch increased by just 1.9%.  Company was fined by CCI (Competition Commission of India) for “selling sub-standard product at higher prices and has been fined Rs 1,773 Crore” – Business Standard.

When both private and public sector companies (especially power producers) are finding it hard to buy coal produced in India and looking for overseas purchase of coal –at a premium prce – isn’t better for this Indian monopoly to invest in increasing production?

What about government? Aren’t they thinking about Indian fuel market? Getting his special dividend will definitely help them to fill the gaps but what about Indian power producers? Why FM is not crying about the foreign reserve outflow for buying coal? Why FM is not worried about the financial condition of both public and private sector consumers?

What about CIL itself? Are they holding the money just to show that we have this much? Don’t they want to increase the business?

What about the so called powerful CIL workers union? They were quick to oppose the stake sale. What about now? Don’t they want to do something?



2. Coal India declares interim dividend of Rs 29/share - Business Standard
3. Bumper Dividend: Coal India failed to find avenues to park its cash - Business Standard