Can Coal India withstand competition from 100% FDI

Recently Government has allowed 100% FDI is coal mining. Since the announcement, talks started how coal India will now not be able to sustain the competition and this can be beginning for the end. In this article, we try to understand how it can impact India largest coal miner and whether it makes sense to invest in coal India at current price.

First understand, India coal situation. India produced 730mt of coal in FY19, of which 607mt production was from our national behemoth. Most of the coal production goes to meet demand for merchant power generator, industries like cement and steel sector. India needed 950mt of coal in FY19, so balance 234mt was imported mostly from SE Asian nation and Australia.

Demand Growth India demand for coal is increasing by 5-6% every year, so is the production of coal, hence it can be assumed that coal India was not in position to replace the imported coal. Company is promising for long that we will reduce India's import dependence, but regularly fall behind on meeting the target.

Terms with Buyers Coal India commitment to power generator and industrialist are for long term purchase contract, so one should assume that existing customer of the company will not move committed purchase. They may go for their incremental need which anyway was met from imported coal. Coal India mines are leased for very long term, hence their is no threat on maintaining the production at current 5-6% growth rate. New bidder will target, mine which is not allocated yet or going for renewal. First one need to look at the unallocated mine within the country and mine going for renewal from coal India kitty.

Replaceable Demand: Now, out of 230mt of coal imported, one should assume 100mt requirement is high gross calorific value coal which is unavailable in India. Plus few of the plans are located near port, which is uneconomical to serviced from road /rail network in India. So, half of currently imported coal will continue to be service through import for reason above.

This leaves 100-125mt of coal in current environment which attract the new investment. If that production come, it will be good for India balance of payment and coal India will be largely unaffected. Though this is big size, global mines and investors are moving away from dirty fuel. Miners are not making investment in coal, few investors don't invest in  companies which burn coal disproportionately, Scandinavian countries. Indian govt,as well, want to push renewal energy, most of new capex in power generation has come in renewal sector.

Opportunities for Coal India: Now lets see what coal India can do to become efficient miner. Coal India, faced with incoming competition should take bold decision to aggressively ramp up production and make opportunity size for foreign player from 100mt to even lower. Reduce employee count, coal India employee cost will be 35% of revenue, one of the highest in world. Here, union hold the sway, if coal India ask employee to increase production by 1mt, union will say will need xx more worker, this increase burden of cost and leave limited scope for mechanisation.

Coal India should do something on washeries side, it is very sorry state of affairs. When company came with ipo since then we are thinking washeries will be set up, still washed coal is not even 3%of total production. Washeries, if installed near coal plant, will improve GCV, reduce wastage to travel from mine to steel /power plant and hence reduce cost of transportation.

This can be wishlist, but within PSU good thing is wishlist remain the list and one doesn't have to keep updating it, we can say this should not be in base case to expect improvement from here in future, so question is should one invest in Coal India.

Valuation: Coal India is currently valued at 3x EV/EBITDA and 8% dividend yield. Cash balance is 30% of mcap hence looks like decent investment. Company has given guidance of 660mt production, 9% growth if they are able to achieve even 640mt, valuation will start looking even better.

Risk: Biggest risk is promoter itself. Continuous overhang on stock due to govt divestment. Plus current NDA govt has found innovative way to take money from PSU. Asked ONGC to buy HPCL, hence they take the money and retain the control as well. Minority shareholder of both the companies will be screwed. Government currently is hungry and need fund. Can Govt do similar thing in Coal India, ask the company to buy SAIL or RINL.

Possibility of risk materialising is low: when HPCL was sold, govt stake was 51% in it they can't take much money from HPCL directly and hence use it to take ONGC cash. Here, Govt. hold 70% in Coal India, so if 25000cr dividend is declared govt. will get 70% plus 20% as DDT. In total, they get 22500cr out of 30000cr, 75%. In HPCL leakage was fairly high.

Disc: No investment, doesn't like investment in PSU Co. Money earned by slogging 12hrs shouldn't chase company run by last people.

Changing Trend among Indian Television Audience

There has been huge change in last two decade in the way we use to watch television. It use to be family entertainment and important source of information which is getting heavily disrupted in the modern digital world. I am interested in understanding given the current context, how this industry will shape up in future, what will be the future of key listed players like Dish TV, Zee Entertainment and Sun TV.

Reason for shift from family entertainment to personal choice: There is no denying the fact that entrainment has become more personal. Back in 90s entire family use to watch tv together and now it has shifted to individual staring at small personal screen. Definitely, rise of individualism lead to such shift but also increase in choice of content is important factor.

Back in 90s, there was only one particular show on prime time, hence entire family watch that only thing available on TV. Fast forward that in 2000s, there was one important show at particular time, KBC slot fix for 9PM and Mr. Bachchan would say "9 baj gaye kya" in star commercial reflecting family watching that one thing together. Now, there is plethora of content to please every mood, personality and hence variety of choice means individual with different personality /age group will prefer different content. Hence, era of watching TV together is getting over and this trend is unlikely to get reversed.

Advertisements model on television getting disrupting : Television was great medium for new brands to advertise and create awareness among consumer about new launches. Some products plainly use to show inherent qualities while other use to position their brands as aspirational and create latent demand for their products. The premium brands will showcase consumer in 4 wheeler while the affordable brands will try to make appeal to consumer on 2 wheeler.

Both are again getting disrupted due to digitization. You get to know about product at the click of the button, not only you get to know what companies are claiming about performance but feedback from the real users. Companies also have many avenues to disseminate information about their products. Social media advertising is on the rise. Even to position their products companies use multiple platform and hence the share of television is on decline. However since the overall pot of total advertising revenue from the companies have increased multi-fold, this is not that big negative.

Advertising eyeballs reducing significantly: This is non reversing trend, content watching on television is shifting from traditional cable and DTH to digital. Rise of Amazon prime, Netflix has bring in plethora of good content to television watchers. Consumer doesn't to go through advertisement when they are watching television, this will hurt broadcaster as they draw revenue from two source, subscription from consumer and advertising.

With so much usage of mobile phone, people attention span is reducing dramatically. No one wants to wait for content to upload or buffering, few seconds of advertisement on YouTube is irritating. In such scenario, advertising revenue which accrue from television is on limited oxygen and soon will be history. What may happen is telecom companies and every app on mobile phone track every activity of users and that data is sold to marketeers who can do targeted marketing, like I receive ad on stock market while browsing on Internet.

Content created on bulk getting limited  viewership: A decade back, family soap opera were being watched by almost all age group within the family. Ekta Kapoor was household name, cut across age group.

One broadcaster loosely said once, hum jhola bhar ke content banate hai, 30min episode created everyday which is consumed by Indian audience, the amazon prime and Netflix of the world can't make that much content to satiate Indian audience appetite. This trend is again shifting, though significant people still watch daily dose of opera, but the underlying shift can't go unnoticed. A decade back there was just few national broadcaster, who claimed ownership of Indian audience, now there is so many content provider from Indian and overseas producers, earlier model is definitely is disrupted. It is like earlier youngster were watching only one sports in India, now apart from cricket, people have developed interest in football, tennis even badminton and TT is gaining traction. This shows preference of new audience is more diverse than before or already they are served more granular than earlier.

All this points to a direction that tradition medium of entertainment has to evolve our may slowly move towards extinction.