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Get ready to pay more for power - Views on News from Equitymaster
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  • May 22, 2009

    Get ready to pay more for power

    Power to become costlier
    Reasons such a lower profits, increased staff costs and unviable expansion plans have made India's largest coal supplier, Coal India Limited (CIL) mull over increasing price of coal to improve realisations. During FY09, the company saw its profits plummet on account of a substantial wage increase following the Pay Commission's recommendations. While the chairman of CIL has not given a precise figure as by how much or by when the prices are set to increase, but these hikes are likely to take place this year itself. Estimates of a leading business daily states that CIL may need to hike coal prices by at least 13% if it has to take up all its proposed expansion plans and retain its earlier profit trend for FY10.

    While this piece of news may not impact power companies' margins as they have the ability to pass on prices to their customers, this does not augur well for the ultimate consumers of power - industrial, commercial and residential. Given that the cost of power has already seen a consistent rise over the past few years, this proposed hike in coal prices from CIL will further add to the consumers' burden.

    Maruti - Suzuki's prized possession
    A few weeks back, we had written about the rising clout of Indian operations of several multi-national companies. But this one surely takes the cake. As per a leading business daily, Maruti Suzuki, India's largest passenger car manufacturer now accounts for as much as 46% of its Japanese parent Suzuki's consolidated profits. Although the company has had a bad year in terms of profitability as its full year profits fell 30%, its performance was still way better than the parent's operations in developed markets of the West and even Japan.

    A greater share in profits would translate into more leeway for the company in terms of taking its own decisions and greater autonomy. This is evident from the fact that although Maruti is exporting 30,000 units of its model A-Star as a part of an outsourcing deal with Nissan where the latter would sell them in Europe under a different name, it is less keen to do such deals in the future given the uncertainty involved. Suzuki on the other hand, will continue a Nissan like deal with Mazda whether Maruti does the same out of India or not. The parent has also not repatriated Maruti's profits to Japan as it feels that the Indian operations need to make sizeable investments in capacity expansion and research and development to continue to remain a force to reckon with in the Indian markets.



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