Coal India overtook Reliance as the most valuable company by market capitalization in India this week. Last week Apple briefly took over the most valuable company by market capitalization in the world. Coal India’s market capitalization at USD 55 billion is higher than Reliance market capitalization, which is at USD 54 billion. Apple and Exxon Mobil have market capitalization of USD 341 billion each, with Exxon Mobil being marginally higher than Apple. Apple overtaking Exxon, as the most valuable company by market capitalization is definitely something to cheer about, while Coal India overtaking Reliance as the most valuable company by market capitalization is definitely not something to cheer about. The reason is Apple symbolizes innovation while Coal India symbolizes the vast pile of coal reserves it is sitting on.
Apple was 287th down the pecking order of market capitalization ten years back. It is now number one or two depending on market fluctuation. Apple has come up the ranks due to its innovative products that have taken the world by storm. Ipod, Ipad, Iphone, Mac are now household electronic items across the globe and sales in China, the fastest growth market in the world is just at the tip of the iceberg.
Coal India on the other hand is a government owned company. It is sitting on the largest reserves of coal in the World and sells coal at 57% discount to global prices. The government owns 90% of the company. Coal India dominates the coal industry in India with an 82% market share. The company value arises from the reserves it is sitting on and the coal supply demand dynamics, which is skewed towards demand rather than supply. Any price increase in coal goes directly to coal India’s bottom line.
The difference between Apple and Coal India is stark. Apple is a dynamic company engaged in the most competitive business in the world. It has to innovate to survive and do well, which it has done admirably. Coal India on the other hand does not have to do anything, its value comes from underneath. It has no competition, no accountability, no pressures and answers only to the government which itself symbolizes all the ills of poor management.
Apple overtook Exxon on market capitalization because it has done something right while Coal India overtook Reliance in market capitalization without having to do anything. That by itself should wake up Indian’s on the lack of ability to innovate to become world class players in highly competitive fields of electronics and technology. The sharp fall in shares of outsources such as Infosys and Wipro, which have fallen by over 25% on worries over US economic growth highlights the dependence on low value technology services as opposed to high value innovative technology products.
Coal India rising to the top is a sad state of affairs and hopefully India will have an Apple clone coming up to become the most valuable company.