JSPL shares fall 15% as Government rejects bids for coal mines

MUMBAI: Shares of Jindal Steel & Power Ltd ( JSPL) crashed on Monday after the government rejected bids made by the company for three coal mines during an auction held recently, while Hindalco and Usha Martin surged after the government accepted their bids.

The JSPL stock tanked 15 per cent intraday on Monday, before paring some of its losses to close the day at Rs 154, down 6.3 per cent. JSPL had been extremely volatile over the past year; the stock has fallen over 41 per cent and has under-performed the ET Metal Index by a wide margin which is down only 3.5 per cent.

"We would advise investors to stay away from JSPL as it may remain under pressure on concerns over adequate raw material supply to run its plants, besides litigation over coal mines that came up for auction,” said Daljeet Singh Kohli, head of research at IndiaNivesh.

Hindalco, however, jumped 2.7 per cent to close at Rs 135.7; it was a star performer on Monday, after the government accepted its coal block bid, prompting analysts to recommend the stock as a long-term buy.

"We have an overweight rating on Hindalco and see the company among key beneficiaries," said Chirag Shah, analyst at Barclays. "Improved raw material supplies should lead to an upturn in capacity utilisation and an improvement in the company’s balance sheets."

The KM Birla-owned Hindalco, has over the past year, gained nearly 13 per cent and has outperformed the ET Metal Index. But the stock has underperformed the benchmark BSE Sensex, which has gained 31.5 per cent over the same period. "Hindalco is fundamentally a good stock but investors should look at recovery in global metal demand which is currently not visible. Our advice would be to skip the stock over the medium term," Kohli added.


Analysts were pleasantly surprised when JSPL won bids for the Tara coal block at Rs 126 per tonne and Gare Palma blocks at Rs 108 per tonne; this, in comparison to companies that had bid in excess of Rs 2,000 per tonne for some of the coal blocks in other regions.

"We suspend our rating on JSPL from ‘add’ previously due to lack of clarity on the coal-sourcing arrangement for both power and steel businesses," said Kawaljeet Saluja, head of research at Kotak Institutional Equities.

"Cancellation of bids for the power business, coupled with lack of wins in the steel business, leave JSPL in the lurch, as fuel sourcing becomes highly uncertain for both energy-intensive businesses."

In the derivatives market, JSPL futures open interest, or outstanding positions for April futures, jumped 230 per cent, adding 59.64 lakh shares which were mostly in the short side. While Hindalco April futures open interest rose 57 per cent, adding 14.10 lakh shares.

"We have seen fresh short positions and short rollover in JSPL April futures," said Hemant Nahata, derivatives analyst at IIFL. However, traders looked uncertain on Hindalco stock as rollover data were on the lower side at 14 per cent against a 3-month average of 22 per cent.

Usha Martin, a midcap company with a market cap of Rs 800 crore, climbed 18 per cent before closing higher by 13.2 per cent at Rs 25, as Brinda and Sasai coal blocks bid by the company were accepted by the government.

"The Usha Martin stock has surged to news flow impact — there’s nothing beyond that. We don’t have the stock under our coverage," said IndiaNivesh’s Kohli.