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Informist, Thursday, Aug 1, 2024

 

By Avishek Rakshit

 

KOLKATA – Coal India Ltd’s revenue from e-auctions during Apr-Jun declined 7.2% on year as prices fell on reduced competitive intensity from bidders on account of improved availability of domestic coal and moderating global prices.

 

“Because we have stepped up production, coal is widely available now, and we are also selling more to the non-power segment directly as part of our effort to make coal availability easier for them," a company official said. "Thus, they (the non-power sector) need not rely solely on e-auctions to get coal.”

 

As coal production shot up, leading to surplus stock with Coal India, the Maharatna company was able to offer more coal in the e-auctions. In the year ago period, when the country faced coal scarcity, Coal India prioritised supplies to the power sector. As a result, the company was able to allot less coal to the non-power sector as well as to the e-auctions. This year, however, the scenario was reversed, and the company was able to offer more coal to the non-power sector and in the e-auctions.

 

Wider domestic coal availability decreased the competitive intensity at the e-auction. Although auction prices are not benchmarked with global coal prices, they have a spillover effect on the bidders. As international coal prices have cooled off from the highs of a year ago, coal consumers have a choice to procure coal domestically or meet their deficit via imports. Together, these factors led to coal traders and consumers from the power, steel, and ferro-alloy sectors placing lower bids. Their willingness to outbid each other declined markedly.

 

During Apr-Jun, Coal India sold 23.2 mln tn of coal via the e-auctions as compared with 16.1 mln tn a year ago, thereby selling nearly 44% more coal via this route. Though Coal India officials said it was on account of higher production and their willingness to offer more coal to the non-power sector, a cement company official said it was on account of higher stocks that Coal India needed to clear. Also, since coal prices dipped in the auctions, consumers bought more coal at cheaper rates to stock up.

 

The world’s largest coal miner is estimated to have unsold inventory of 70-80 mln tn, but Coal India maintains it cannot simply route larger quantities to the e-auctions to clear stocks. “There could suddenly be a spike in power demand and then coal will be needed. So, we need to maintain adequate inventory to meet any demand surge,” the Coal India official said.

 

The average price of coal at the e-auctions fell over 35% to 2,411.4 rupees, against 3,740.8 rupees in the year-ago period. Thus, Coal India's total income from e-auction sales fell 7.2% on year to 55.9 bln rupees.

 

Income from the e-auctions is crucial for Coal India as it contributes directly to its profits. The reserve price at the auctions is set 20% over Coal India's notified price for long-term contracts, though the mining costs are the same. Hence, Coal India’s performance at the e-auctions is a key metric for investors.

 

Coal India declared its results Wednesday evening, yet again beating the estimates of sector analysts to report consolidated net profit of 109.6 bln rupees, up 4.1% on year. The Street’s projection was 73.6 bln rupees. The company has been beating the Street's estimates of its financial performance for many quarters now.

 

Brokerage ICICI Securities Ltd, commenting in a report, estimated that Coal India sold 19.2 mln tn of coal at the e-auctions at an average 2,565 rupees per tn. Going ahead, the brokerage estimated Coal India’s e-auction prices to dip by 200 rupees per tn. Coal India’s earnings are likely to grow on account of higher supplies to the non-power sector and control of costs, particularly human resources, the brokerage added.

 

Higher income from associate companies, coupled with cost control, also helped the company beat the Street’s view on its consolidated revenues, which increased by 1.3% on year to 364.6 bln rupees--higher than the Street's projections of 359.7 bln rupees.

 

However, Coal India’s average price realisation per tn of sales from contractual agreements declined marginally by 0.8% to 1,524.1 rupees during Apr-Jun, against 1,536.2 rupees in the year-ago period. Company officials said this was on account of grade mismatch in the coal being supplied. Total revenue from coal sales via contracts, nevertheless, rose 2.1% on year to 262.8 bln rupees on account of higher sales volume.

 

Coal India shares today closed 3.5% higher at a record high of 540.40 rupees on the National Stock Exchange after the company's consolidated net profit for Apr-Jun beat analysts' estimates. Some brokerages shared a positive outlook for the company and raised their earnings estimates and stock target prices. The stock was among the top gainers in the Nifty 50.  End

 

Edited by Rajeev Pai

 

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