Coal India: Seasonal impact

A heavy monsoon in the September quarter played spoilsport in the first half of the financial year.

Coal India’s (CIL) overall performance in the first half of the current financial year was negatively impacted by heavy monsoon in the September quarter. The company reported a top line growth of 16.8 per cent year-on-year (y-o-y) to Rs 23,608 crore on the back of an 11 per cent price hike in October 2009 and about 25 per cent increase in e-auction and washed coal prices.

Average realisation surged 13.5 per cent y-o-y to Rs 1,180 a tonne. However, sales volume grew 2.94 per cent y-o-y to 200 million tonnes (mt), while production remained flat at 185.7 mt.

On the operational front, employee costs increased 17 per cent to Rs 9,117.53 crore including ex-gratia payments. However, a 42.7 per cent dip in overburden costs to Rs 778 crore helped operating margins surge 470 basis points (17 per cent). Bottom line at Rs 40,77.8 crore, up by 21 per cent.

The demand for coal is expected to increase 10.6 per cent compound annual growth rate (CAGR) over FY2010–15 as the power sector, that accounts for nearly 75 per cent of the total demand, is likely to see exponential growth as around 60 Mw of thermal capacity will get added over the period, analysts say.

With production expected to witness 8.6 per cent CAGR over the same period lagging demand, India will structurally remain deficient in coal, thus, placing CIL in a favourable position. Analysts at Angel Securities expect CIL’s coal production to post 5.7 per cent CAGR over FY2010–15. The company is aggressively scouting for coal assets in Australia, Indonesia and the US.

With improving thermal power generation, as well as better availability of railway infrastructure, analysts at Motilal Oswal see Coal India’s performance to remain robust in the second half of FY11. While revenues are pegged at Rs 52,866.7 crore for FY11, analysts expect CIL to report a net profit of Rs 13,326.9 crore, up 19.2 per cent y-o-y. The stock at Rs 312.4 trades 14.6xFY11 earnings estimates.