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Why ONGC, NMDC, Coal India stocks are nowhere close to their all-time high

Nevin John     December 5, 2018

India's major public sector natural resources companies -- ONGC, NMDC and Coal India -- find their going tough in the stock market and lag behind their all-time high market value (annual average) even after years.

On November 30, ONGC's market value remained 34 per cent below its all-time high annual average of Rs 2,72,663 crore for financial year 2013/14. Coal India's current market value is 33.75 per cent below its peak value at Rs 2,28,904 crore in FY15. NMDC, which touched its peak of Rs 1,16,621 crore in FY10, is now 74 per cent less in valuation at a paltry Rs 30,230 crore.

ONGC has been facing margin pressure for the last four-five years and it failed to increase the profits to FY14 level. In the last financial year, the PSU oil exploration company posted a standalone profit of Rs 19,945 crore, compared to Rs 22,094 crore in FY14.

Besides, the company was allegedly under pressure to bail out the debt-laden Gujarat State Petroleum Corporation (GSPC) as it bought the gas block for Rs 7800 crore recently. The opposition parties alleged that the company was used to meet the government's disinvestment target--- ONGC bought government's entire 51.11 per cent stake in HPCL for Rs 36,915 crore earlier this year.

The latest news is that the government plans to sell 149 oil and gas fields of ONGC and OIL India to private companies. It has also courted controversy. A six-member panel has been appointed by the government to supervise the sale.

Meanwhile, Coal India's employees largely stayed away from buying shares reserved for them during recent government's offer for sale. The shares were undersubscribed by more than 90 per cent, though they were offered to employees at a discount.

Coal India shares fell over 15 per cent in November before recovering slightly in the last few days. The state-owned company reported lesser adjusted EBIDTA in the second quarter against the brokerage estimates. Coal India is supplying higher share of production on a priority basis to the less remunerative power sector.

The demand for domestic coal increases when imports are expensive, however, Coal India is not benefitting from the demand. "Coal India's production growth has been weak, while the auctioned and allocated coal blocks have not been able to ramp up production," analysts at JP Morgan said in a recent report. The company's profit is consistently falling and its FY18 consolidated profit of Rs 7,020 crore is just half of its FY16 profit.

The country's largest iron ore producer NMDC has slashed prices of high grade iron ore and fines for the current month for countering the cheap imports. In April-September, the country's import has soared 183 per cent over the year-ago period and it affected NMDC.

Iron ore imports by the country is projected to touch 15 million tonnes (mt) by the close of this fiscal, 60 per cent higher than 8.7 mt imported in FY18, as per the forecasts of the Pellet Manufacturers Association of India (PMAI). Earlier, NMDC was struggling to achieve volume growth due to the production halt at Donimalai mine over the issue of additional rental demanded by the Karnataka government as a pre-condition for extending the mining lease.  

NMDC's under-construction steel plant at Nagarnar in Chhattisgarh is facing delay after local protests. The central government had a plan to privatise the steel plant, but it met with little success because of the opposition from NMDC employees, Financial Express reported. The company's standalone profit of Rs 3800 crore is almost half compared to its FY14 level.

The situation is same with the country's largest public sector power producer NTPC, which has a share value capitalisation of Rs 1,15,395 crore and is 32 per cent lower than the peak in FY10. The power generation company is not seeing any improvement in profit for the last four-five years.

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