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    South Asia
     Aug 20, 2011

Coal ousts Reliance to head up India Inc
By Raja Murthy

MUMBAI - Coal India Ltd became India's most valuable company by market capitalization this week, an unlikely position for a state-owned outfit in the unglamorous business of digging up the world's most polluting fuel.

The company overtook Reliance Industries, led by billionaire Mukesh Ambani, India's second-richest person.

The message sent out by the ascent of Coal India (CIL) to the summit of the world's fastest-growing democratic economy is mixed, indicating either a) stout, perhaps remarkable, market faith in supposedly doddering government-owned companies; b) diminishing investor trust in a private sector mired in multi-billion

dollar scams; or c) the market overestimating the strengths of a government-owned monopoly.

As of August 17, CIL's market valuation was US$55.32 billion, just above Reliance Industries' $54.86 billion. State-owned Oil and Natural Gas Corp of India comes a close third with a market cap of $52.82 billion.

CIL, the world's biggest coal miner, is still something of a minnow compared with United States-based Apple and ExxonMobil, the world's two most valuable public share holding companies - with equity around $341 billion each. Still, CIL's stock market rise is as remarkable as that of Apple. Ten years ago, Apple was ranked 287th in Standard & Poor's list of the world's 500 top companies by market capitalization. CIL was listed on India's stock exchanges a mere 10 months ago.

Since its debut on November 4, 2010, CIL's shares have gained 60% from its initial public offering price. The government, as a 90% shareholder of the company, can laugh all the way to its own nationalized banks.

Even so, CIL's share price has gained only about 33% since the close of its first day of trading, while shares in Reliance, a company closely focused on the oil and gas industry, have tumbled around 33% since last November. Reliance's output from India's biggest gas deposit has dropped 18% in the three months to June 30 from a year earlier and its profit this fiscal year may rise only 18%, according to a Bloomberg survey of analysts.

That is far outpaced by CIL's 64% leap in consolidated net profit to $914 million for the quarter ending June 30, helped by a fast-growing economy, with 7.8% growth in the three months to March after expansion of 8.5% last year.

CIL produces 81.1% of India's overall coal production, and feeds 82 of India's 86 coal-based thermal power plants.

The company has cumulative reserves of 267 billion tonnes at its 81 coalfields across eight Indian states, and one in the southeast African state of Mozambique. Chairman N C Jha confirmed this week the company was looking to make acquisitions in Indonesia, Australia and the United States.

Given the range of 21st century money spinners in India, including information technology giant such as Tata Consultancy Services, a coal miner heading the pack appears counter-intuitive.

CIL's rise shows the extent of India's dependence on coal. It is the world's third-largest coal-producing country, after China and the United States, and around 52% of its primary commercial energy needs are served through coal - nearly twice the global average of 29% coal in a country's energy equation.

That is despite concerns at the environmental damage wrought by coal - burning the fuel is the single-biggest made-made culprit for climate change - and the undermining of CIL's business by the notorious coal mafia, particularly in the coal mining district of Dhanbad, in the eastern state of Jharkhand.

Hundreds of mafia groups run amuck in CIL's coalfields, annually looting about an estimated six million tonnes of coal through pilfering, illegal mining, extortion and cartel formation. India's Coal Minister, Sriprakash Jaiswal, announced a national task force to be operational this December to crack down on the coal mafia.

CIL now heads the list of India's five maha ratna companies - "maha" meaning "great", "ratna" meaning "gem" - a ranking the government periodically updates for the most successful state-owned companies. The other four at present are Indian Oil, National Thermal Power Corp, Oil & Natural Gas Corp and the Steel Authority of India Ltd (SAIL).

All five maha ratna companies are core infrastructure and power-related companies, operating in sectors in which India expects to invest over $500 billion in the next five years.

CIL's ascent is not universally welcomed. Not least, and unlike Apple, CIL literally only has to dig stuff out of the ground for its earnings.

"Coal India's value comes from its coal reserves, and has nothing to do with innovation," market analyst and former fund manager Arjun Parthasarthy scathingly grumbled. "It has no competition, no accountability, answers only to the government, and has all the ills of a poorly managed government-owned company."

Parthasarthy, who edits an online financial advisory site titled "Investors Are Idiots.com", is not impressed with a market that could make CIL India's most valuable company. Nor does he think it helps the credibility of the maha ratna ranking.

"SAIL [the fifth of the "Great Gems", with turnover of $10.35 billion] is a much better managed company than Coal India," Parthasarthy told Asia Times Online. "It had to go through tough times."

CIL does not see itself entirely as coal-black villain. Its social welfare programs, it says, include supporting 536 schools and 86 hospitals, and planting 2.5 hectares of new forests for every hectare of forest land degraded from mining. The Kolkata-based company has also started online auctions and procurement for more transparency.

Reliance also has little in the way of debt, giving it scope for overseas expansion. It has still-young interests in shale-gas projects in America, and gross operating profit from these and its refining and petrochemicals businesses could double to $11 billion in three or four years, the magazine reported.

For its part, CIL also has ammunition to spare - it reached its present position having to sell coal at nearly half the international price.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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