Amid concerns related to increasing raw material cost and unclear clauses in the fuel supply agreement (FSA) with customers, the government divesting its stake in Coal India has hurt investor sentiment further.
Shares of the company are around 4 percent down to Rs 308.05. The stock has fallen around 25 percent from its 52 week high of Rs 386 on September 17.
Five reasons why CIL stock is down.
Considering the significant fall in the stock in the past six months, marketmen doubt whether CIL stock will fetch premium to its current market rates in the government's divestment programme. The government is planning to offload around 10 percent of its stake in the company to meet half of the divestment target of 2013-14 at one go. The divestment would either be through an offer for sale (OFS) or a follow-on public offer (FPO).
Coal India's output has slowed down in FY13 drawing a lot of negative sentiment.
The stock will remain under pressure for sometime till there is clarity on certain pricing related clauses in the FSA. Private companies which are customers to CIL have alleged that the model FSA is skewed toward public sector companies.
The company has not been able to raise prices despite raw material cost increasing by the day. If this trend continues, the company may have to give away benefits it accrues from robust realisation.
The company's April-Feb production is 398 metric tonnes versus 413.7 mt year-on-year. It may have to import 20 mt to avoid penalties, incase there is a short supply.
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