NEW DELHI, Dec 14 – In a surprising turnaround, the demand surge for Indian coal is propelling state-run giants Coal India and NTPC Ltd to new heights, outpacing the broader market and global peers. Investors, once skeptical of these companies as slow-moving giants, are now reaping substantial returns as India’s dependence on coal for power generation continues to rise.
NTPC, a major producer of coal-fired power, has witnessed a remarkable 78% surge in its shares, significantly surpassing the 17% gain in the broader Nifty Index. Simultaneously, Coal India’s shares have soared by 55%, marking their most prosperous year in 2023.
As the most coal-dependent major economy globally, India’s reliance on coal for power is expected to increase for the third consecutive year, particularly as the growth of renewables slows down. Analysts anticipate that the rally in shares for these companies will persist, driven by efforts to enhance efficiency and secure access to affordable capital.
In contrast to the Indian state giants, coal miners worldwide have faced challenges. Shares of companies such as Indonesia’s Adaro Energy, Australia’s Whitehaven Coal, and U.S.-based Peabody plummeted this year, while the Indian counterparts, China Shenhua and China Coal Energy, experienced more modest gains.
Despite global environmental, social, and governance (ESG) norms becoming stricter for institutional investors, foreign funds have been increasing their stakes in Coal India and NTPC. Notable investors include the asset management units of Goldman Sachs, Nippon Life, Vanguard, Blackrock, Fidelity, Mellon Investments, and Charles Schwab.
“Foreign shareholding in the company has steadily moved higher over the last two years, highlighting the dialing-down of the ESG discount,” noted JPMorgan in an August note on Coal India.
Both Coal India and NTPC, traditionally seen as dividend stocks, have witnessed a remarkable transformation. While Coal India lost 57% of its value in the decade through 2020, both companies have shown impressive growth since 2021. NTPC’s value has tripled to $34 billion, and Coal India, the world’s largest coal miner, has grown 2.5 times to $26 billion.
Analysts point to NTPC’s lower cost of debt as a key factor contributing to its edge in the power industry. Additionally, NTPC, the only major Indian company still expanding coal-fired capacity, is increasing coal output from its own mines. In contrast, Coal India is optimizing operations by outsourcing certain tasks and cutting thousands of jobs annually to boost margins, despite most sales being on low-margin, long-term contracts to utilities. The surplus output has allowed for more substantial spot sales in the auction market, setting them apart from global coal miners grappling with tightening funding.
14th Dec 2023
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