Coal India ups non-coking coal prices, expects to earn Rs 64 bn in Q4

Following the revision of wages of around 300,000 workers in the company, it faces an outgo of an estimated near Rs 60 billion

Coal India (CIL) has raised non-coking coal prices by an average of nine per cent to stave off the impact of increasing wages of around 0.3 million employees.

This is expected to cover the increased expenses, while providing the company headroom to step up capital expenditure for mining operations.

CIL’s annual expenses increased by an estimated Rs 64 billion after it decided to revise wages for executive and non-executive employees. While it has provisioned around Rs 27 billion for the higher wages, it still faced nearly 60 per cent cash crunch.

Company officials were of the view that the increase would next year fetch Rs 64.21 billion of additional revenue, exactly the increase in its annual outgo, and would only balance the deficiency in income-expenditure. “It is mostly revenue neutral in nature and would help to balance the increased outgo,” a company official said.

Although the prices of higher grades have been reduced by 2.1-4.7 per cent, the price was increased by 20.4-21.9 per cent for the G6-G7 grade. The price of coal sold in the G11-14 bracket has been increased by 13.5-17.9 per cent. The country’s power and cement sectors primarily use coal in the G6-7 and G11-14 brackets.

CIL’s previous price revision was in May 2016, a 6.2 per cent increase on an average.

Wages and other employee benefit expenses accounted for 48 per cent of the cost overhead of the company, which has risen by 49 per cent since 2011 at Rs 296.60 billion. The company’s net profit dipped nearly 15 per cent at Rs 92.66 billion during 2011-2017.

Senior company officials said after the wage revision and before taking a call on the price hike, various options — including curtailing operating short-term and mid-term costs like closure of loss-making mines, offering voluntary retirement scheme to curtail direct employees and mine mechanisation — were considered. However, hiking the prices by an average of 6-9 per cent was considered necessary to retain profitability.

Analysts were of the view that even after the increase, CIL’s notified coal prices were still lower than the landing cost of imported coal and consumers would continue to stick to CIL. “Moreover, the demand from power sector is still there and future projects like rural electrification, fines on discoms in case of power shortage and others will drive demand in the mid term. Thus sales are expected to remain stable,” a senior CIL executive said.

According to ICRA, the price of thermal grade coal with gross calorific value of 3,100-4,300 kcal/kg for supply to power sector has been increased by 15-18 per cent. Calculated with the additional Rs 50-a-tonne evacuation charge, the cost of thermal power generation was expected to increase by 13-15 paise/unit.

While CIL has lined up a massive Rs 150-billion capital expenditure for mining and other operations, analysts had expressed concerns over financing these projects from the company’s earnings before interest, tax, depreciation and amortisation, in the face of additional provisioning for the wage hike. However, with an exact sum making up for the wage outgo, analysts said the burden for provisioning has been neutralised, provided the company can expand to improve output.

Sources said the coal ministry has set a 630-million-tonne production target for 2018-19.

The company’s stock rose 5.63 per cent on the BSE to close at Rs 304.05 apiece on Tuesday.