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Birla, Agarwal, Jindals set to make aggressive bids for coal blocks

Top Indian conglomerates led by the Aditya Birla group, Vedanta group, Adani and Jindal Steel and Power are set to make aggressive bids for coal blocks – taking into account their urgent requirements for coal to keep their plants running in the vicinity, said analysts here.

While Birla group’s Hindalco has qualified to bid for 15 coal blocks, group’s cement giant, Ultratech has applied for 6 coal blocks. Vedanta group companies are set to bid for 17 coal blocks while the Jindal brothers have qualified for 14 blocks, as per the qualified bidders list announced by the government today. The financial bids via e-auction will begin from this weekend till February 22.

“We will not have any separate funding planned towards the coal auction. The requirement is not going to be much as just 10% of NPV (net present value) will be needed initially. We will fund the auction through our internal accruals,” said chief financial officer, Praveen Maheshwari here today. As on December 31, Hindalco Industries has cash of about Rs 6,000 crore.

The government is planning a ‘reverse auction’ for the power sector where the lowest per ton bid for coal decides the winner of the coal block. By design, the auction process is a trade-off between better coal availability that could translate into improved utilization rates for the power plant, and compromise on the return profile due to a potential downward revision of the energy rate. The reverse-auction process would imply that the energy rates will either be revised downwards based on the bid price or at best maintained, as per Kotak Institutional Equities.

“Incumbents such as Jindal Steel and Power, Sesa Sterlite, Jaiprakash Power Ventures and KSK Energy Ventures will have an advantage in winning coal blocks because of proximity to coal mines, sunk capital cost on mine development, and sale arrangements (or their absence) that minimize reduction in energy charges,” Murtuza Arsiwalla of Kotak said in a note today.

“Taking into account the balance sheet size of Sesa Sterlite-HZL, Hindalco-Ultratech and Jindal Power, it will not be difficult for these companies to bid aggressively for the blocks as coal will be a pass through,” said an analyst with Motilal Oswal Securities. Companies such as Hindustan Zinc and Sesa Sterlite have a sizeable cash in hand while others like Sesa Sterlite and Ultratech and Ambuja have favourable debt to equity ratio as on FY 2014.

Hindalco is adopting an aggressive and diversified approach to bid for the producing coal blocks and has bid for 80% of the available non-regulated mine capacity through 8 coal mines of 15 available and has placed multiple bids for each mine. “Multiple bids for the same block will provide flexibility to select more favorable mines in bidding,” said an analyst with Motilal Oswal Securities. Hindalco has four separate power units at Mahan, Aditya, Renukoot and Hirakud.

Hindalco’s rival Sesa-Sterlite is bidding through Balco, Hindustan Zinc and its Jharsuguda unit. Sesa Sterlite has also made multiple bids for the same coal block and is well spread across the blocks on offer. Balco is logistically in distance better placed in most mines than its own Jharsuguda unit or Hindalco, while JSPL has an advantage for some of the larger mines like Gare-Palma-IV-1 and IV-7. “We believe it (Jindals) would face competition mainly from Adani, GMR, KVK, DB Power and Sesa Sterlite who also have plants in the nearby vicinity,” said Sanjay Jain of Motilal Oswal.

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