Coal India posts 61% rise in Q1 profit at Rs 37.86 bn on increased sales

Revenue stood at Rs 254.71 billion

Backed by increased sales, particularly to the power sector and an increase in coal prices in its e-auctions, Coal India posted a staggering  61 per cent rise in its net profit at Rs 37.86 billion for the quarter ended June 30, 2018. The net profit in the similar quarter of the last fiscal year stood at Rs 23.51 billion.

The miner missed street estimates which were hoping for a net profit in excess of Rs 42 billion. Nevertheless, the steep rise in profitability is despite the company provisioning Rs 1.99 billion for its executive employees whose salary was revised earlier.

According to a company official, on a sequential basis, e-auction prices rose by over 13 per cent to touch Rs 2,399 a tonne which had a significant improvement in its profitability. During the quarter ended March 31, 2018, e-auction prices stood at Rs 2,112 a tonne.

“Although e-auction isn’t a large revenue contributor, the premium from such auctions directly impacts the profitability of the company and it is on the rise”, the Coal India executive said.

During April-June period this year, the coal monolith sold 19.41 million tonnes (mt) of coal in the auctions which translated into an earning of Rs 46.57 billion.

Its total revenue, which is aligned with the new accounting standards post the GST rollout, stood at Rs 254.71 billion as against the earning of Rs 217.74 billion in the year-ago period.

In January this year, the world’s largest coal miner had hiked non-coking coal prices by an average of nine per cent, which not only covered increased expenses of nearly Rs 60 billion as a result of wage hikes, it also provided headroom to step up capital expenditure for mining operations.

On the other hand, its employee benefit expenses rose by 18.90 per cent at Rs 95.98 billion while the payout to contractual workers and contracted equipment rose by 2.52 per cent at Rs 31.76 billion.

To improve productivity from its existing mines, Coal India is working towards more mechanization of the mines but company officials opine that it wouldn’t lead to job losses.

“The role and nature of work may change as mechanization progresses”, a second company official opined.

Interestingly, the company has been able to curtail its finance costs which dipped by 8.33 per cent at Rs. 1.10 billion.

With demand for coal on the rise again from its key power and steel sectors, the company spent Rs. 8.83 billion to expose coal seams in its opencast mines to make them ready for mining in the immediate future. However, the demand may remain a bit muted in the monsoon season which covers the second financial quarter as power generation and industrial activity normally remains tepid during this season.

Nevertheless, last month, its production and sales rose by 10.6 per cent at 40.56 mt and 8.9 per cent at 48.25 mt respectively.

“The monsoons are always challenging for any mining company, including us, and we are working towards ensuring that the thermal power plants are supplied coal in time”, the official added.

Coal production during the quarter under review stood at 136.85 mt – up by 15.15 per cent while sales increased by 11.68 per cent at 153.47 mt.

During the quarter, the government divested 0.225 per cent stake by way of placement of shares in Bharat 22-ETF. After the divestment, the government now holds 78.32 per cent equity in Coal India.

Sector analysts expect coal demand in the country to grow at 6.8 per cent which is in line with the projected demand growth of thermal power. In turn, it is expected that Coal India will be a major beneficiary from this growth spurt.