ET Now In a chat with ET now, Piyush Jain, Equity Analyst, Morningstar, shares his views on the Supreme Court’s order on coal blocks. Excerpts:
ET Now: For the moment the markets are painting all the power and power manic companies with the same brush. Have you done some numbers on which company or which stock will have the biggest hit and how will things change?
Piyush Jain: I am sorry at this point, but in terms of the power companies getting hit, those are less in our coverage at present, So would not be able to give you some numbers, but I would like to give some points about the impact being seen.
There are two points here. Number one, the Supreme Court ruling actually has made it quite uncertain at present and the impact which we are seeing. For example, let us say Hindalco is quite down at present. So those companies for which actually the coal blocks are quite critical, say if we are seeing Hindalco, the smelter upgrade requires the coal block to make it quite cost competitive. So the impact would be, their cost curve would shift simply from $1800 per tonne to somewhere around 2000 plus. So it is critical for the companies and those companies actually are seeing the impact in share prices today. But the ruling still is providing that the coal blocks actually would be re-visited to how the allocation should be made.
So I do not think actually we had seen that complete cancelation at present. It is like there is a possibility of being re-visited very shortly. So probably there could be something different, but my general comment would be that for many companies, which actually got blocks in terms of joint venture, in terms of transfer from the public ownership to their usage, are seeing the impact. So actually it is quite negative for many mining and power companies.
ET Now: Is it a good time to be a contra buyer and let us a good quality name like Hindalco because for the moment the coal blocks have not been cancelled. Hopefully some clarity could emerge on 1st of September. So is the panic time a good time to be a contra buyer?
Piyush Jain: It is a good time to be a contra buyer in that because our take on the aluminium space globally is that aluminium prices are going to move up. So you are actually seeing an increase in the aluminium demand typically coming from increasing aluminium usage in automobiles globally.
Hindalco had Novelis, which is the highest contributor in terms of the company. More than 60% is coming from Novelis, which means that Novelis is going to derive a very high demand from aluminium usage and if they are expecting the aluminium prices to move up from the current $2000 to towards $2500 per tonne over the next five, six, seven years, this is going to be a good long-term growth story.
So Hindalco definitely it is a long-term growth story and should be a good entry point whenever the market gives you.
ET Now: For the moment the markets are painting all the power and power manic companies with the same brush. Have you done some numbers on which company or which stock will have the biggest hit and how will things change?
Piyush Jain: I am sorry at this point, but in terms of the power companies getting hit, those are less in our coverage at present, So would not be able to give you some numbers, but I would like to give some points about the impact being seen.
There are two points here. Number one, the Supreme Court ruling actually has made it quite uncertain at present and the impact which we are seeing. For example, let us say Hindalco is quite down at present. So those companies for which actually the coal blocks are quite critical, say if we are seeing Hindalco, the smelter upgrade requires the coal block to make it quite cost competitive. So the impact would be, their cost curve would shift simply from $1800 per tonne to somewhere around 2000 plus. So it is critical for the companies and those companies actually are seeing the impact in share prices today. But the ruling still is providing that the coal blocks actually would be re-visited to how the allocation should be made.
So I do not think actually we had seen that complete cancelation at present. It is like there is a possibility of being re-visited very shortly. So probably there could be something different, but my general comment would be that for many companies, which actually got blocks in terms of joint venture, in terms of transfer from the public ownership to their usage, are seeing the impact. So actually it is quite negative for many mining and power companies.
ET Now: Is it a good time to be a contra buyer and let us a good quality name like Hindalco because for the moment the coal blocks have not been cancelled. Hopefully some clarity could emerge on 1st of September. So is the panic time a good time to be a contra buyer?
Piyush Jain: It is a good time to be a contra buyer in that because our take on the aluminium space globally is that aluminium prices are going to move up. So you are actually seeing an increase in the aluminium demand typically coming from increasing aluminium usage in automobiles globally.
Hindalco had Novelis, which is the highest contributor in terms of the company. More than 60% is coming from Novelis, which means that Novelis is going to derive a very high demand from aluminium usage and if they are expecting the aluminium prices to move up from the current $2000 to towards $2500 per tonne over the next five, six, seven years, this is going to be a good long-term growth story.
So Hindalco definitely it is a long-term growth story and should be a good entry point whenever the market gives you.
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