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Informist, Monday, Jan. 27, 2025

 

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--Coal India Oct-Dec consol net profit INR 85.06 bln
--Analysts saw Coal India Oct-Dec consol net profit INR 85.16 bln
--Coal India Oct-Dec consol PAT INR 85.06 bln vs INR 102.53 bln yr ago
--Coal India Oct-Dec consol revenue INR 357.80 bln vs INR 361.54 bln yr ago
--Coal India to pay INR 5.60 per share interim dividend
--Coal India Apr-Dec consol PAT INR 257.54 bln vs INR 288.30 bln year ago
--Coal India Apr-Dec consol revenue INR 1.029 tln vs INR 1.049 tln yr ago

 

By Avishek Rakshit

 

KOLKATA – For the second time in the past 12 quarters, falling e-auction prices and lower sales due to muted demand conditions have hit state-owned Coal India hard as the company reported a sharp decline in its consolidated net profit and marginal fall in sales growth during Oct-Dec. The results were nearly in line with the Street's expectations.

 

The Maharatna company reported a sharp 17% on-year decline in its net profit to INR 85.1 billion as against the Street's estimate of 85.2 billion and revenue fell by 1% on year to INR 357.8 billion. The revenue is exactly what the Street had estimated.

 

Under strong demand conditions, Coal India had posted a revenue and profit growth since the December quarter of 2020-21 (Apr-Mar). But things changed since Jul-Sept of the current financial year as the country had abundant coal, and power demand did not rise as per expectations. Faced with an inventory overhang and low prices, for the first time since December 2021, Coal India reported a declining profit in the September quarter of FY25, and it maintained the decline in Oct-Dec as well.

 

Under low demand for coal owing to a surplus in the country, sales volume during Oct-Dec increased marginally by 1.5% on year to 194.1 million tonne. But the company's total earnings from coal sales fell by nearly 2% on year to INR 323.6 billion. The fall in revenue is mostly on account of low selling price of coal in the auctions and its average price realisations from coal sales taking a hit.

 

Although the world's largest coal miner sold 22% more coal in the Oct-Dec e-auctions at 19.3 million tonnes, prices fell by 19.6% on year to INR 2,671 per tonne. As a result, the company's total income from e-auctions dipped to INR 51.4 billion as against INR 52.3 billion.

 

E-auction sales are the most important parameter for Coal India's profit. The bidding in the e-auctions starts at a minimum of 20% over the notified price of coal. While production cost is the same for both the coal sold under long-term agreements and e-auction, the latter gets higher revenue which directly adds to its profit.

 

Nearly all its subsidiaries, including prime coal producing ones like Eastern Coalfields Ltd., suffered in the e-auctions due to low demand and surplus coal conditions. As of Dec. 31, Coal India had over 70 million tonnes of coal at its pithead mines as against 49 million tonnes on Dec. 31, 2023.

 

At the same time, the company took a hit on the long-term contractual supply as well where coal is sold at notified and pre-determined prices. Referred to as fuel supply agreement, or FSA, it is the sales volume driver for Coal India and makes up for most of its revenue. Fuel supply agreement sales volume during Oct-Dec declined as well, as did the average price realisation.

 

The Maharatna company sold a total of 170.8 million tonne of coal under FSA during the quarter under review at an average price realisation of INR 1,514. Comparatively, it had sold 172.3 million tonnes of coal at an average price realisation of INR 1,532 in the year-ago period. Thus, on coal supply, which assures Coal India a steady sales volume and revenue, the company had to bear a double whammy of volume decline, and falling revenue.

 

"Coal is widely available now in the country and international coal prices are also soft. The demand for coal did not rise to the extent as anticipated and thus there is a surplus situation now. Simple economics (law of demand and supply) state that under surplus conditions, prices take a hit and that is what has happened," a Coal India official told Informist when asked about the reason for such muted sales. "But the objective is to ensure that the country does not face any coal crisis in coming days, and we are ensuring it."

 

Wide coal availability also meant that the prized washed coal, which basically is coal broken into equitable shape and washed to free the impurities, also bearing the brunt of low prices. Sales volume of this type of coal increased by 23.3% on year to 4.1 million tonne, but average prices again, fell 20.3% on year to INR 3,285 per tonne. For Coal India, washed coal accounts for value-added sales and hence is priced at a much higher rate, often higher than auction prices.

 

As a result, the company's average realisation per tonne of sales, encompassing FSA, e-auctions, and washed coal declined by 3.4% on year to INR 1,667 per tonne, thereby pulling down the revenue.

 

However, the company's other operating income rose by 8.8% on year. For the first time since the commissioning of the railway line in the Basundhara mining area, Coal India earned a revenue of INR 400 million from this railway project. The company is extensively connecting its mining area with power plants to move coal faster to the gencos.

 

 

While Coal India's revenues fell, total expenses during Oct-Dec increased by 4.3% on year to a little over INR 262 billion, and the share of profit from its joint ventures, primarily from the fertiliser segment, declined by 75.2% on year to INR 709.9 million further stressing the overall profit.

 

Although the largest cost overhead, employee benefit expenses accounting for 43% of the total expenses, declined by 3% on year to INR 112.2 billion, other factors like higher outgo on explosives and higher payout as contractual costs pushed up the overall costs. For instance, the cost of explosives, crucial to blast and expose coal seams for extraction, rose by INR 1.5 billion, and the company's expenses on contractors, who deploy manpower to mine and produce coal, shot up by 17.4% on year to a little over INR 85 billion.

 

Easing of coal demand in the country was previously anticipated by the company due to improvement in production, but the demand supply imbalance became more prominent in the September quarter.

 

During Apr-Dec, Coal India's consolidated net profit fell by 10.7% on year to INR 257.5 billion and the revenue declined by 1.9% on year to a little over INR 1 trillion. However, discounting the company's other earnings from non-mining related activities, revenue from coal sales alone declined by 3.3% to INR 928 billion.

 

Monday, Coal India's board approved a payout of INR 5.6 per share as interim dividend.

 

Coal India declared it earnings after trading hours but the market had already been estimating a lacklustre financial performance by the public sector undertaking. Monday, the company's scrip closed 1.9% down at INR 375.8 on the National Stock exchange. End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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