CIL obliges govt with payout, doles out more than it earns
Given that Coal India's earnings for FY14 are estimated at Rs 18,000 crore, the cash-rich PSU seems to be shelling out more than what it will be earning this year too by digging into its cash reserves of Rs 62,000 crore.
Shares of Coal India rallied a little over 5 percent inopeningtrade, hitting a two-month high, after the cash-rich PSU announced a higher dividend of Rs 29 per share, amounting to Rs 18,317 crore, for 2013-14.The company will pay the dividend from January 25.The Kolkata-based company, the world's largest coal miner by output, had paid a total dividend of Rs 14 share in the previous fiscal year.
A dividend of Rs 29 per share for a company that trades at Rs 290 gives a dividend yield of 10.
"Currently, Coal India January futures is trading at a discount of Rs 12.85/share. The given discount was in anticipation of the dividend expected during the month. However, the total dividend exceeds 10 percent of the current market value. Hence, the futures and options segment is likely to react differently," said ICICI Direct in a report.
The government's 90 percent shareholding in the company will fetch it about Rs 16,485.71 crore. In addition, a sum of Rs 3,113.05 crore by way of dividend distribution tax will take the government's gain to Rs 19,598.76 crore.The dividend amount is more than the profit it earned last year. In March 2013, the company posted a net profit of Rs 17,356.4 crore. And,given that Coal India's earnings for FY14 are estimated at Rs 18,000 crore, the cash-rich PSU seems to be shelling out more than what it will be earning this year too by digging into its cash reserves of Rs 62,000 crore.The heavy payout could also hit the capex plans of the coal major, which is obligated to supply specified quantities of coal to power companies under the 157 fuel supply agreements.
Also, there couldn't be a worse time for the government to force Coal India to shell out cash. The PSU, which accounts for 80 percent of India's coal output, has missed production targets for several years and its growth has been hobbled by a lack of investments on modernisation and delayed approvals of its mining projects. Now the largestdividend payout incidentally comes amid fears that CIL's profitability may fall because of lower-than targeted production and offtake.
The Competition Commission of India (CCI) had fined the company Rs 1,773 crore for selling sub-standard product at higher prices. Now the largestdividend payout incidentally comes amid fears that CIL's profitability may fall because of lower-than targeted production and offtake.
So basically, the interim dividend wouldhelp the cash-starved government narrow its fiscal deficit.The government has been on an overdrive to meet the disinvestment target of Rs 40,000 crore this fiscal. Coal India dividend comes in the backdrop of government failure to disinvest 10 percent of the company's shares this year. Trade unions were opposed to further disinvestment of Coal India which was listed in November 2010 after a blockbuster initial public offer.
India's slowing economy and rising subsidies on food and fuels have pushed the government into a corner, with fiscal deficit for the April-November period rising to $82.3 billion, or nearly 94 percent of the full-year target. The government aimed to control its budget deficit in part by raising $6.4 billion through stake sales in state companies, but disagreements among ministries and a depreciation in the rupee have complicated the timing of several issues, following which the finance ministry has been coaxingPSUs to either pay special dividends or go for a share buyback to help the government meet its fiscal deficit target.
Last week heads of several blue-chip state- owned firms assured Finance Minister P Chidambaram that they will try to meet their capital expenditure plans for 2013-14 and maintain the dividend paid last fiscal.
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