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Narendra Modi may keep coal ministry; Coal India shares zoom after rumour

Tuesday, 20 May 2014 - 7:10am IST | Place: Kolkata | Agency: dna

Is Narendra Modi going to keep the coal ministry with himself? That's a scenario market players are betting on, driving Coal India stock to a gain of 13% on Monday.

With the coal scam having hogged the electoral campaign rhetoric, a section of market players and brokerage houses, some of whom dna spoke to, see Modi keeping the ministry under his fold, at least in the initial days of the new government.

This would help him spearhead wide-ranging reform measures in order to clean up the taint of scam on the sector and also to free up Coal India Ltd (CIL) from ministerial controls.

CIL might even get the freedom to decide its own infrastructure requirement without depending on the railway ministry, thereby having greater control over evacuation and transportation of coal.

"We are yet to fathom the extent of positive impact of reform in the sector on CIL. And this is what driving the sentiment for the company. There is a strong possibility that the reforms in the sector would be high on the agenda of the BJP government with Modi himself taking the initiative," an analyst with Prabhudas Lilladher said.

"Several of CIL's projects to create rail infrastructure are suffering delays, and we expect these projects to get a push once both the railway and coal sectors are reformed," he said.

Sentiment towards CIL was also positively impacted by a report issued by Barclays that speculated on reform of CIL itself.

There is an opportunity for the government to effect a complete image makeover of the mining sector as the worst seems to be behind it, and mining sector growth, particularly coal, would address several economic and social issues, Barclays said in the report titled 'Material Modi-fication'.

Demand for materials is hitting a trough, and the BJP government's focus on accelerating urbanisation and infrastructure should result in a sharp demand recovery, the report said.

Modi's government should focus on building railway infrastructure, helping plug a supply shortfall and curb imports of coal, Chirag Shah, an analyst with Barclays said.

The earlier government, after deliberating on it, had given the issue of restructuring CIL a quiet burial. The new government may revive it at the earliest as consultant Deloitte's report is already with the ministry since February.

"Restructuring CIL, which essentially involves separating its subsidiaries and making them independent, doesn't appear value accretive though as it is only a holding company, and would lose its attractiveness once the mining companies are separated," an analyst said.




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