Coal India Q1 net down 23% at Rs 2,351 cr

Mine grade revision has started to reflect on company's earnings

The effects of mine grade revision has started reflecting on Coal India, which posted a 23 per cent decline in its net profit at Rs 2,351.21 crore for the quarter ended June 30, 2017, missing street estimates.

The net profit of the company in the corresponding quarter of the last financial year stood at Rs 3,065.26 crore.

The average price realisation of the coal miner from fuel supply agreements (FSA) for the three months ended June 30 declined by Rs 38 to Rs 1,201 a tonne as a result of the mine grade revision which severely impacted the top line. Nevertheless, Rs 16 a tonne higher realisation over the notified price in e-auctions and higher coking coal prices saved the company from posting a negative top line growth. Coal India's net sales during the period under review rose by four per cent at Rs 19,810.45 crore as against the earning of Rs 19,034.48 crore in the similar quarter of the 2016-17 financial year.

FSA comprises 78 per cent of the company's turnover while the rest of the net sales come in from e-auctions. The rise in e-auction price, however, was much lower than street estimates which had projected a Rs 81 or five per cent increase.

Although the company was able to hold on its top line, a higher provisioning for the upcoming wage agreement and spiralling expenses dragged the bottom line down.

According to a senior Coal India official, the company was able to increase its top line by Rs 638 crore but then had to provision Rs 778 crore for the forthcoming wage agreement.

"On top of that, the interest income fell to Rs 216 crore as reserved capital is coming down as well as bank rates", the official told Business Standard.

On a consolidated basis, the company's expenses shot up by 10 per cent to touch Rs 17,836.57 crore in the first quarter of 2017-18 as against Rs 16,197.89 crore in the corresponding time-frame.

"Employee benefit expenses are up by 5.6 per cent at Rs 8,072 crore and our contractual expenses also increased by 11 per cent. This was a drag on the profitability of the company," the official added.

An analyst with Motilal Oswal said Coal India's price realisation decline from FSA is worse than the Street's estimates which had projected a decline of Rs 25 per tonne of coal.

"The FSA realisation decline has been sharper than what was projected while the company had to provision for the impending wage agreement. A decline in the profitability was imminent", the analyst said.

Analysts had projected a 10 per cent decline in Coal India's first quarter profitability.

According to a report from ICICI Securities, Coal India reported a three per cent moderate growth in offtake in the first quarter of 2017-18.

Another senior Coal India executive projects a total hit of Rs 2,300 crore on the company's earnings in the current financial year as a result of the mine grade revision.

 

Overhead	Q1 FY 2017-18	Q1 FY 2016-17	Percentage rise/fall
Net Sales	1,9810.45	1,9034.48	4%
Net Profit	2,351.21	3,065.26	- 23%
Total Expenditure	1,7836.74	1,6197.89	10%

All figures in Rs crore

Source – Coal India Ltd.