"He never chooses an opinion;
he just wears whatever happens to be in style."
-
Leo Tolstoy (Russian, 1828-1910)
Word for the day
Aggrandize (v)
To widen in scope; increase
in size or intensity; enlarge; extend.
(Source: Dictionary.com)
Malice towards
none
As things stand today morning, it's between Lalu and
Modi in Bihar.
Supporting cast includes Nitish and Paswan.
Rahul plays a cameo.
All coal is not diamond
I can understand the political viewpoint in running Air India,
BSNL/MTNL, BHEL, Coal India and scores of mid and small sized PSU banks. What I
fail to see is the rationale behind an investor buying the stocks of these
companies.
There is enough empirical evidence to show that the private
competition has eroded market share and profitability of public enterprises.
HMT, MTNL, Air India, SAIL, BHEL etc are good examples to show.
Recently, private sector banks have been gaining market share at
the expense of PSBs. Most of these banks have also reported better
profitability and asset quality.
Private sectors banks have been able to raise additional capital
from the market and grow. They are also free to rationalize their costs,
including workers' compensation, as per market conditions. Whereas PSBs have to
depend on the government's fiscal condition to receive additional capital.
In a drought year when the banks may face rise in delinquencies
and additional demand for farm sector credit, tighter fiscal condition may not
afford them the much needed additional capital. Strong workers' union and
political considerations also constrict them from workforce rationalization.
So while in the improving credit cycle, these institutions could
provide a decent trading opportunity, these do not qualify to be investment
worthy institutions for private investors under any circumstance.
NTPC enjoys the distinction of being the only company in the world
all whose major customers are bankrupt. Despite whatever reforms in past two
decades, the health of state electricity boards and distribution companies
remains hopelessly poor. How could possibly, NTPC hope to grow and become a
world class utility under these circumstances.
Coal India has admitted to being overstaffed and cost inefficient.
At a recent analyst meet, the management has expressed its intention to reduce
the workforce by 12000-13000 people every year, depending on how much and how
fast technological upgradation is implemented.
Reportedly,
the coal ministry has released a draft document which proposes that CIL should
sell coal to the non-regulated sector at a price determined through auctions
every five years. The draft document also proposes that the floor price for
coal will be the notified prices of coal - the prices at which CIL sells coal
to the non-regulated sector.
Considering that in past many attempts of the company to
rationalize workforce have been thwarted by the workers' union, it would be
interesting to see how this plan is implemented in next few years
The costs of the company are expected to rise by 60% over five
years. If the prices for a part of its produce remains fixed, the margins will
obviously take a hit. Moreover, given the expectations of a prolonged slowdown in
global demand for coal and rock bottom freight rates, the competition from
global supplies will be intense. The competition may further exacerbate if
material improvement is seen in port facilities and inland rail connectivity.
Privatization of coal mining is inevitable. How the government
prevents Coal India from becoming another MTNL, would need to be seen. In the
meanwhile I am ignoring all "Buy" recommendation on Coal India.
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