Increased payout to employees drags down Coal India's Q4 profits

Higher sales, an increase in coal prices and the imposition of evacuation facility charges helped Coal India post a Rs 269.09 billion topline for the quarter ended March 31, 2018 even though its net profit tanked by 52.37 per cent at Rs 12.95 billion. 

The sharp dip in net profit, as per Coal India officials, is on account of providing for a one-time transitional effect of increase in gratuity amounting to Rs 73.84 billion. Taking this into consideration, the gross profit of the company stood at Rs 107.26 billion in comparison to Rs 42.81 billion on a year-on-year comparison.

Its topline in the fourth quarter (Q4) of the 2016-17 fiscal year stood at Rs 240.25 billion. However, owing to changes in accounting standards after the rollout of GST, the topline is not comparable.

During the quarter under review, Coal India had to absorb the financial impact after the gratuity ceiling was increased from Rs 1 million to Rs 2 million as well as provision a total of Rs 15.46 billion on account of wage revision of the executive employees of the company. Also, on account of revision of wages of the non-executive staff, its expenses rose by another 8.93 billion over the past two fiscal quarters. 

“As a result of this, its employee benefit expenses rose by 80.22 per cent at Rs 166.53 billion as compared to Rs 92.40 billion it incurred in the year-ago period which dragged down the net profitability of the company”, an analyst said.

As per a company official, in anticipation of an increased demand for coal, particularly from the power sector, the world’s largest coal miner had increased its focus on exposing the coal seams making them extraction-ready. 

In turn, it led to a 67.45 per cent increase in its costs related to stripping activity adjustment which stood at Rs 24.85 billion during the Q4 period of the 2017-18 fiscal year as against Rs 14.84 billion incurred during the similar quarter of the 2016-17 fiscal year.

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 the last fiscal year, Coal India registered its highest ever production as well as sales volume at 567.37 mt and 580.29 mt respectively.

In January this year, the coal behemoth 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.