A Good Long Term Prospect-Neyveli Lignite

Aditya Rao

If you had bought a single share of Neyveli Lignite a year ago then as of today you would have nearly doubled the value of that share. That’s a gain of almost 100 percent.

But by no means should this particular stock be seen in the light of a short term gain because the majority stake holder in this company is the government but at the same time it is an excellent long term prospect.

Neyveli Lignite is India’s biggest Lignite mining company. Lignite is the scrappiest form of coal available naturally but at the same time it is extremely versatile and useful which is why it is such a sought after item.

Known also as brown coal it is used extensively for the production of electricity. For long Neyveli Lignite has been supplying Lignite to power companies. At the same time it has started implementing its own power plants in western and central India.

For a long time this company was not sought after but the increasing demand for fuel and power supply over the last decade has forced people and companies to look for alternatives. This has greatly benefited the company, catapulting its growth and status not to mention its profits.

Seizing the opportunity, the government decided to dilute its stake in the company thus allowing more of its share to be bought and traded. A move that has definitely helped the company.

One prominent reason this company is seen as a good long term investment is because it provides an alternative to higher priced fuels. Neyveli has an abundant supply of Lignite and the government is actively involved in commissioning research projects in order to unlock the potential of this commodity.

The future clearly sees the government slowly letting go of its grasp over the company. A move which will bring in more investment not only from domestic investors but also heavyweight foreign companies especially those dealing in power themselves. Such a step often leads to the share prices of the company to surge upwards and yield a higher dividend to all its investors.

It is exactly for this reason that investors choose to hold this stock over a lengthy period of time more often dealing with it on a long term basis instead of focusing on intra day gains. The current state of the market is one where the share of Neyveli Lignite is trying to consolidate itself. The stock has moved up and down the past month gaining tremendously on one day while losing some the other.

It is this difficult period that the company considers tricky and a reason why the share is more of a long term player over the short term one. In January the price of the share was almost double its current price.

There is however no need to fear. The future shows that Neyveli Lignite is on its way up. Two months ago it signed a massive agreement to set up a power station in Singrauli for Rs. 5200 Crore.

Such steps are indicators of a company realizing its potential. Something always good for the investor.