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PSU emerges winner as Reliance fails to enthuse investors
Coal India (CIL) ended Reliance Industries' four-and-a-half-year reign at the top on Wednesday to emerge as India's biggest company by market cap as soaring demand, high commodity prices and a monopoly position in the industry lifted its shares.
Coal India, which was listed only last year, rose 2.8% to end at . 398 on BSE on Wednesday, giving it a market value of . 2,51,328 crore. Reliance Industries, which dethroned ONGC in February 2007 to become the biggest company by market value, slipped 0.7% to . 753.8 with a market value of . 2,47,196 crore.
The development has been expected for some time as CIL has been the best performer among Sensex stocks so far this year. Its shares have gained 26.5% since the beginning of this year, compared with a 28.67% fall for Reliance Industries.
RIL Still has Highest Weightage in Sensex
The Sensex has fallen 17.89% in this period. "Investors have turned bullish on the company due to its robust performance and strong prospects, given high demand potential for coal," said Divyesh Shah, CEO, Indiabulls Securities. However, RIL still remains the company with the highest weightage in the Sensex. Its free-float market cap (which refers to the value of shares available for trading) is about . 1,35,921 crore, compared with CIL's . 25,130 crore. CIL has also been helped by general investor mood in favour of safer, defensive stocks or those with monopoly position in the market due to an uncertain global economic environment. Stocks worldwide have been battered due to flagging growth in the US and concerns over the future of Europe's single currency. CIL is the world's biggest miner by output sitting on the world's largest extractable reserves. It produces about 80% of the country's coal output. India does not allow private companies to mine coal unless it is for captive purposes. Recent reports that Indian private power producers are finding it difficult to deliver power tariffs agreed upon due to rising prices of imported coal have also boosted CIL shares. Many Indian power producers are importing coal as they find CIL supplies to be erratic and inadequate. Last Friday, Coal India posted a 64% jump in net profit to . 4,696 crore while sales rose 27%.
Foreign brokerage house HSBC recently upgraded its rating and raised the target price for CIL, expecting coal e-auction prices to converge faster with those of imported coal. CIL sells its coal through the auction method and its prices are generally lower than that of imported coal. HSBC also raised EPS estimates by 10-12%. Reliance Industries, India's biggest conglomerate with presence in sectors ranging from oil exploration to broadband, has suffered from an uncertain outlook at India's biggest gas field off the eastern coast. The company's KG-D6 basin was expected to be a moneyspinner, with many estimates saying its production would top 80 million cubic metres per annum. But technical problems at the field forced RIL to cut output while analysts have downgraded revenue and earnings targets. RIL has also not given a timeframe for resumption of normal production, creating more uncertainty for investors.
Even the decision to sell a 30% stake in 21 oil & gas blocks, including KG-D6, to BP has failed to enthuse investors. Similarly other initiatives undertaken by RIL since the Ambani brothers parted ways in 2006 have failed to move markets. Reliance Retail now runs one of the two largest retail operations in the country but investors do not appear to see any significant upside to the stock. There is also lack of clarity about the company's plans for the telecom sector. Unlike in the past, fund managers now look at RIL more as a trading bet rather than as a long-term investment in their portfolios. According to the analysis of brokers' recommendations on RIL and CIL, the number of 'buy' calls on RIL since October last year have gone up from 22 to 40 while 'sell' calls have come down to 1 from 4 at the start of January this year. For Coal India, the number of 'buy' calls since listing have risen to 26 from 12 while the number of 'sell' calls stand at 4.
Coal India, which was listed only last year, rose 2.8% to end at . 398 on BSE on Wednesday, giving it a market value of . 2,51,328 crore. Reliance Industries, which dethroned ONGC in February 2007 to become the biggest company by market value, slipped 0.7% to . 753.8 with a market value of . 2,47,196 crore.
The development has been expected for some time as CIL has been the best performer among Sensex stocks so far this year. Its shares have gained 26.5% since the beginning of this year, compared with a 28.67% fall for Reliance Industries.
RIL Still has Highest Weightage in Sensex
The Sensex has fallen 17.89% in this period. "Investors have turned bullish on the company due to its robust performance and strong prospects, given high demand potential for coal," said Divyesh Shah, CEO, Indiabulls Securities. However, RIL still remains the company with the highest weightage in the Sensex. Its free-float market cap (which refers to the value of shares available for trading) is about . 1,35,921 crore, compared with CIL's . 25,130 crore. CIL has also been helped by general investor mood in favour of safer, defensive stocks or those with monopoly position in the market due to an uncertain global economic environment. Stocks worldwide have been battered due to flagging growth in the US and concerns over the future of Europe's single currency. CIL is the world's biggest miner by output sitting on the world's largest extractable reserves. It produces about 80% of the country's coal output. India does not allow private companies to mine coal unless it is for captive purposes. Recent reports that Indian private power producers are finding it difficult to deliver power tariffs agreed upon due to rising prices of imported coal have also boosted CIL shares. Many Indian power producers are importing coal as they find CIL supplies to be erratic and inadequate. Last Friday, Coal India posted a 64% jump in net profit to . 4,696 crore while sales rose 27%.
Foreign brokerage house HSBC recently upgraded its rating and raised the target price for CIL, expecting coal e-auction prices to converge faster with those of imported coal. CIL sells its coal through the auction method and its prices are generally lower than that of imported coal. HSBC also raised EPS estimates by 10-12%. Reliance Industries, India's biggest conglomerate with presence in sectors ranging from oil exploration to broadband, has suffered from an uncertain outlook at India's biggest gas field off the eastern coast. The company's KG-D6 basin was expected to be a moneyspinner, with many estimates saying its production would top 80 million cubic metres per annum. But technical problems at the field forced RIL to cut output while analysts have downgraded revenue and earnings targets. RIL has also not given a timeframe for resumption of normal production, creating more uncertainty for investors.
Even the decision to sell a 30% stake in 21 oil & gas blocks, including KG-D6, to BP has failed to enthuse investors. Similarly other initiatives undertaken by RIL since the Ambani brothers parted ways in 2006 have failed to move markets. Reliance Retail now runs one of the two largest retail operations in the country but investors do not appear to see any significant upside to the stock. There is also lack of clarity about the company's plans for the telecom sector. Unlike in the past, fund managers now look at RIL more as a trading bet rather than as a long-term investment in their portfolios. According to the analysis of brokers' recommendations on RIL and CIL, the number of 'buy' calls on RIL since October last year have gone up from 22 to 40 while 'sell' calls have come down to 1 from 4 at the start of January this year. For Coal India, the number of 'buy' calls since listing have risen to 26 from 12 while the number of 'sell' calls stand at 4.
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