Chakri Lokapriya, Managing Partner, RSB LLP, says the current Supreme Court ruling on mines, allowing states to collect past dues will mean an outgo of about Rs 60,000 crore for just the PSUs and another Rs 1 lakh crore for the private companies. So, Rs 1,60,000 crore will need to be repaid over the next 10-12 years. Now, that completely takes away the capital expense that these companies plan for the next many years, which means the jobs that they were going to create and the NPAs that they will create in the banking system, have multi-ramifications right from job creation to NPAs.
Insurance over the last couple of months has become quite interesting for investors because the overhang seems to be over. Do you still think the story is not fully discovered and priced in or do you think perhaps the best is in price already now?
Chakri Lokapriya: I think the price hikes largely reflect the increased costs that they are mandated to do. Now, they have to cover the existing ailments, and also, the price revisions faced by the insurance companies are periodic versus other prices, like medical costs, which are going up continually. All things adjusted, I do not think 7-10% price hikes will take care of the risks and the cost increases, but not add to the profitability.What is happening with the metal pack? Given that you had the Supreme Court order which is now allowing the states to collect past dues, it looks like, it is going to hurt the miners pretty hard because the sector saw a sharp drop around 11 o’clock on Wednesday or so. But what is your view about these companies, especially the mining companies?
Chakri Lokapriya: This is reminiscent of what happened when the coal licenses were cancelled roughly 18 years ago and that led to a huge spike in the banking NPAs. For the next 10 years, the banking sector struggled and then finally the balance sheets are good now. The current Supreme Court ruling on mines is about Rs 60,000 crore for just the PSUs and add another Rs 1 lakh crore for the private companies – Rs 1,60,000 crore will need to be repaid over the next 10-12 years. Now, that completely takes away the capital expense that these companies plan for the next many years, which means the jobs that they were going to create and the NPAs that they will create in the banking system, have multi-ramifications right from job creation to NPAs.
Insurance over the last couple of months has become quite interesting for investors because the overhang seems to be over. Do you still think the story is not fully discovered and priced in or do you think perhaps the best is in price already now?
Chakri Lokapriya: I think the price hikes largely reflect the increased costs that they are mandated to do. Now, they have to cover the existing ailments, and also, the price revisions faced by the insurance companies are periodic versus other prices, like medical costs, which are going up continually. All things adjusted, I do not think 7-10% price hikes will take care of the risks and the cost increases, but not add to the profitability.What is happening with the metal pack? Given that you had the Supreme Court order which is now allowing the states to collect past dues, it looks like, it is going to hurt the miners pretty hard because the sector saw a sharp drop around 11 o’clock on Wednesday or so. But what is your view about these companies, especially the mining companies?
Chakri Lokapriya: This is reminiscent of what happened when the coal licenses were cancelled roughly 18 years ago and that led to a huge spike in the banking NPAs. For the next 10 years, the banking sector struggled and then finally the balance sheets are good now. The current Supreme Court ruling on mines is about Rs 60,000 crore for just the PSUs and add another Rs 1 lakh crore for the private companies – Rs 1,60,000 crore will need to be repaid over the next 10-12 years. Now, that completely takes away the capital expense that these companies plan for the next many years, which means the jobs that they were going to create and the NPAs that they will create in the banking system, have multi-ramifications right from job creation to NPAs.
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