SC ruling may blacken coal players' future

The Supreme Court came down profoundly on the coal block allocations made by previous governments between 1993 and 2010 and termed them arbitrary and illegal. It comes as a big shock to the market that is barely coming back to life again. Not only is the decision a dampener to the spirits of aspiring investors, also to those who have already parked truck loads of investments in the allotted blocks.

More so, the decision - final judgement yet to arrive on September 2, which will decide if coal fields allotted should be scrapped or else – can easily wipe out over Rs 20,000 crore in market capitalization. Although, it’s for the apex court to decide whether de-allocation should follow, investors are indisputably in some sort of tizzy.

The markets, only just, are recovering from stagnation in economy and policy paralysis witnessed in the last decade. If the speculation (de-allocation) turns reality, many investors will see the capital invested by them getting destroyed.

A section of hopeful lot, which is optimistic that de-allocation, if takes place, will be followed by re-allocation. But, the problem lies intact – no one knows how long the latter may take. Anyways, market capitalization of coal players is bound to take a thump, no matter what follows.

Since the court’s judgement is out, sentiment for coal and power stocks is way down. Even banking stocks have something to worry, considering the already increasing size of Non Performing Assets (NPAs) and mounting number of applicants for Corporate Debt Restructure (CDR).

The day Supreme Court gave the verdict, stocks of companies such as Jindal Power and Steel Limited (JSPL) was affected the most in the intra-day trade. It enjoys Ebidta margin of nearly 30 per cent at present, and in the worst case-scenario impact on consolidated earnings will be about 40 per cent, as per an anonymous market expert quoted by Pallavi Pengonida of Mint calculated. De-allocation will hurt its profitability by considerable margin.

Even companies such as R Power Ltd. saw erosion in their stock value by 4 per cent on the day of judgement. With the court clearly saying, “Coal blocks allocated from Ultra Mega Power Projects (UMPP) should only be used for same purpose and no diversion or commercial exploitation is permitted.”

Therefore, plans of Reliance Power to shift surplus coal from Sasan to Chitrangi project will be hurt, also affecting financials of firm.

To cut the long story short, the next judgement by the honorable Supreme Court will be noteworthy, considering the weak footing on which our economy is presently standing. It would be appealing to observe what follows in the coming days.