India Investment, Stocks, Credit Card and Retail Forum
Investments in Indian Equity and Research => India Stocks and Shares => Topic started by: komal on February 22, 2012, 12:00:50 PM
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The attempt is to put in place a co-ordinated approach which addresses the viability issues for large number of capacities under construction.
Reading between the lines suggests: i) Only 35GW of the 70GW projects under construction based on coal linkages to be eligible for FSAs ii) FSA commitment for 68% of capacity utilization, entailing protection of debt servicing but equity returns unlikely iii) Coal India's production required to increase by atleast 110-120m tons over next 3 years (CAGR of 8%), and will translate into a substantial operating leverage iv) Penalty for non-performance is possibly not severe, as even the current max penalty rate of 40% on say 50m tons shortfall will be an impact of INR20b and thus unlikely to act as a large deterrent / protection.
The obvious beneficiary is the financial sector, where the risk of NPA threat has been partly mitigated given that the committed fuel supply will ensure 68% capacity utilization. Thus, the project developers will start working for debt servicing, while equity returns continue to be a question-mark. For Coal India, the possible upside is from a volume growth, leading to operating leverage. Capital goods companies, particularly for power generation are likely to witness 'order intake holiday' and elongated execution periods