Author: Gordon Platt

EMERGING MARKETS INVESTOR / COMPANY TO WATCH: COAL INDIA/INDIA

by Gordon Platt

Coal India has enjoyed a solid increase in its stock price since it listed on the Bombay Stock Exchange last November in the country’s biggest-ever IPO, but the company’s fundamentals remain compelling in light of India’s growing demand for electricity. Coal is used to generate more than half of India’s electricity, and Coal India accounts for 85% of India’s coal production.

One of the world’s fastest-growing economies, India could face an electricity shortage of more than 10%—and perhaps as high as 15%—in the current fiscal year, according to the Central Electricity Authority. Meanwhile, delays in getting environmental clearance for mine expansion are creating fuel shortages, forcing India to import more coal.

Kolkata-based Coal India is in talks with major US coal producers, such as Peabody Energy and Massey Energy’s Sidney Underground Mines. The Indian mining company would like to buy a stake in Sidney, which owns mines in Kentucky. Coal India already owns two coal properties in Mozambique and is also talking with PT Golden Energy Mines, based in Indonesia.

In April 2011 the Indian government granted Coal India so-called Maharatna status, which will aid the company in its expansion plans. The new status means that Coal India will have greater autonomy in making decisions to invest more than $1 billion in subsidiaries and joint ventures.

Coal India has a domestic inventory of 70 million metric tons of coal, which it intends to gradually release on the market as rail capacity becomes available to transport it. Last year’s heavy monsoons delayed shipments, causing inventory to accumulate.