Shares of Coal India rose over three per cent on Tuesday, a day after its board agreed to sign new fuel supply agreements (FSAs) with power producers, with an average penalty of just 0.01 per cent for supply shortfalls.
The penalty clause in the new FSAs is well below the prevailing levies of 10-40 per cent, according to foreign brokerage JPMorgan.
Coal India shares gained 3.18 per cent, or Rs 10.80, to close at Rs 350 on the Bombay Stock Exchange here on Tuesday.
However, the near-term boost is unlikely to be sustained, JPMorgan argued, as the more pressing issue was how Coal India would meet the government’s condition that 80 per cent supply commitment be provided to power providers. The foreign brokerage maintained its “underweight” call on the stock.
Those long-term supplies, which would be provided at lower prices than what could be fetched in private markets, is at the heart of the tussle between Coal India's directors and The Children's Investment Fund, the biggest minority shareholder in CIL.
“Implementation of the new FSAs, which would require about 80 million tonnes of incremental coal offtake for the power sector, will lead to a shortfall of about 10-20 million tonnes, likely to be bridged through imports,” analysts at IDBI Capital said. “Also, signing of these FSAs is likely to see an increased pressure to feed the power sector’s needs at lower realisations and, hence, reduce the pricing flexibility of Coal India,” they added.
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