The stock market has recently faced significant downturns, particularly affecting government shares. A concerning development has emerged regarding a coal-related stock that could impact its value. If the Supreme Court’s review of mining-related tax matters does not yield favorable results, or if the company fails to collect taxes from its customers, Coal India’s financial impact could potentially reach a staggering ₹35,000 crores. A senior official stated on Friday that the mining company intends to wait for clarity before making any provisions in its accounts.
Chairman’s Insights
P.M. Prasad, Chairman of Coal India, indicated that the company’s two subsidiaries, Mahanadi Coalfields Limited and Central Coalfields Limited, are specifically impacted, while the remaining subsidiaries are not affected. Mahanadi Coalfields, located in Odisha, is facing the brunt of the situation. In a worst-case scenario, if the company is unable to recover funds from long-term Fuel Supply Agreement (FSA) customers, the financial impact could amount to approximately ₹35,000 crores. This declaration was made during a press interaction following a meeting at the Bharat Chamber of Commerce. Furthermore, it was noted that Central Coalfields in Jharkhand could incur losses amounting to ₹350 crores.
Expectations of Recovery
Despite the bleak outlook, Prasad expressed hope that the company could recover at least 75-80% of the amount owed, as these are large public sector entities engaged in electricity generation, secured by FSAs. Should this occur, the final net impact could be reduced to around ₹6,500-7,000 crores. Recently, the Supreme Court granted states the authority to collect royalties on mineral rights and mineral-rich lands from the central government and mining companies beginning April 2005.
Pending Judicial Review
Prasad emphasized that the matter is currently under judicial consideration, and a three-member bench of the Supreme Court might review this decision. According to the present ruling, tax demands are set to commence from April 2026 and will be collected in installments over a period of 12 years. Nevertheless, a Coal India official mentioned that the company would await final clarity before making any provisions. If such a substantial loss occurs, it is likely to have a noticeable impact on the company’s share prices.
Projected Financial Overview
| Scenario | Financial Impact (₹ Crores) |
|---|---|
| Worst Case | 35,000 |
| Expected Recovery | 6,500 – 7,000 |
| Potential Loss for Central Coalfields | 350 |
The situation calls for close monitoring as legislative and judicial developments unfold, and investors are urged to stay vigilant considering the potential implications for Coal India’s stock performance.
