CIL becomes India's most valuable firm
Aug 18, 2011
Coal India Ltd (CIL), the world's largest coal pro- ducer, surpassed Reliance Industries Ltd (RIL) as India's most valuable firm by market capitalization on Wednesday.
This is the first time since February 2007 that the oil-to- yarn and retail conglomerate led by Mukesh Ambani has slipped a notch below from its position as the nation's largest company by market value.
RIL first became India's most valued company in October 2006 when it toppled state-run Oil and Natural Gas Corp. Ltd (ONGC) from the top slot. In February 2007, ONGC overtook it for a brief while.
CIL's shares rose 2.64% on Wednesday to close at 397.85 on BSE. At this price, the state- run firm's market cap rose to 2.51 trillion. A 0.55% decline in RIL's stock price to 754.80 per share meant its market val- ue slipped to 2.47 trillion.
BSE's benchmark Sensex, of which both RIL and CIL are part, rose 0.66%.
CIL has been closing the gap with RIL in terms of market value over the last few months and on 9 August, the difference was less than 1%.
CIL's performance on the bourses received a shot in the arm with former chairman Partha S. Bhattacharyya's deci- sion to hike coal prices, soon before stepping down, a senior CIL official said on condition of anonymity.
Since 28 February, when CIL announced an increase in the prices of the commodity, the company has gained 21.2% on the bourses, while the Sensex gained 5.51%. The CIL stock had reached a record 422.30 on 31 May. At this price, its market cap was 2.67 trillion, but at that time RIL's market cap was 3.12 trillion.
RIL has seen a major erosion of investors' wealth over the last year. The declining market value has been triggered by fac- tors including stagnating gas production from the D6 block in the Krishna-Godavari basin, and regulatory scrutiny over the possibility of gold-plating costs for the development of the block, India's largest gas find.
While the conglomerate's newer businesses like telecom and financial services are at an infancy stage, its fairly large re- tail operations are yet to con- tribute to its profit.
Investor disinterest in RIL and attraction towards CIL can be explained as a desire to in- vest in a safer company that has proven assets, a strong bal- ance sheet and is backed by the government in uncertain mar- ket conditions, said Prakash Diwan, head of institutional cli- ents group at Asit C. Mehta In- vestment Intermediates Ltd.
“Though it is possible that RIL soon regains the top posi- tion, but it is difficult for it to sustain there in the long-run,“ he said. “Investors have been concerned over the fall in RIL's stock price over the last 9-12 months and there has to be more clarity on the future as far as RIL is concerned.“
CIL's market value may grad- ually scale up, especially if the government sells more shares in the company and the Street expects an intense competition between RIL and CIL in the coming days, Diwan said.
The coal miner had raised 15,200 crore through the country's largest initial share sale in October.
It was included in the 30-member Sensex on 8 August.
Since CIL started trading, it has gained 16.2%, while RIL has lost 31.7%. The Sensex lost 19.4% in the same period.