INSUBCONTINENT EXCLUSIVE:
Superior business performance almost always guarantees superior stock returns
But one stock has been defying this logic on Dalal Street all of this past decade.
Shares of Coal India have slipped 20 per cent this decade
despite having an RoCE (return on capital employed) of between 25 per cent and 60 per cent since 2008, a high dividend payout record and
robust capital efficiency ratio, read RoCE
As many as 28 other stocks on BSE with consistent RoCEs of over 25 per cent have rallied up to 2,100 per cent in these 10 years.
Specialty
chemicals firm Vinati Organics topped the list with 2,074 per cent returns since December 2010
The company also delivered over 25 per cent RoCE in last 10 years
Other stocks with consistent RoCE included Symphony (1,504 per cent), Page Industries (up 1,483 per cent), Mayur Uniquoters (up 956 per
cent), Titan (up 502 per cent), PG Hygiene Health Care (up 464 per cent), Abbott India (up 460 per cent), HUL (up 455 per cent) and Dhanuka
Agritech (up 449 per cent).
RoCE is the measure of earnings before interest and taxes (EBIT) for every rupee of capital (equity and debt)
In other terms, it measures the capital efficiency of the company
Analysts often prefer this matric to value a business.
Some analysts say government policies coupled with environmental concerns and a
slowdown in the economy affected Coal India in last few years.
Others say it was a high base effect of pricing
On the listing day, the stock fully priced in the fundamentals of the business
Over the years, production rampup leading to a drop in price realisations and increased focus on renewables dampened sentiment on the
counter.
Meanwhile, regular stake sales by the government in PSU firms are keeping investors cagey
When Coal India got listed, the government held 90 per cent stake in the coal monopoly
Today, it holds around 73 per cent.
Analysts still look at the stock as an attractive investment bet with a 3-4 years outlook, citing
From an investment perspective, Coal India will become a very good investment bet on hopes of a rise in dividend yield
We may see a hike in dividend as PSUs are being forced to give higher dividends
Vice-President for Equity Research at Sunness Capital.
While the stock has not appreciated in value, its high dividend payout has resulted
in 60 per cent or more return for investors since its listing
Tactically though, things may improve for PSU stocks now
once the problems related to power and infrastructure companies get resolved, Coal India will emerge as a frontrunner to tap the opportunity
as these businesses use coal in bulk.
The government held 72.91 per cent stake in the company as of December 31, 2019, while foreign
portfolio investors, mutual funds, insurance companies and other financial institutions held 5.99 per cent, 5.38 per cent, 9.73 per cent and
2.49 per cent, respectively
Individual investors hold less than 2 per cent stake in the company, which does not help better price discovery
says Jain.
Independent market expert Ambareesh Baliga says cash-rich PSUs are like a milch cow for the government
Additionally, with the sword of disinvestment dangling, nobody is buying the stock despite it being a great dividend play, as investors do
They give good returns to investors over time
However, RoCE alone is not important
There should be at least 10 per cent topline growth
