Coal India: Game On Point

Coal India (CIL) has been able to sustain the ‘surplus tag’ for yet another year, despite the ongoing turmoil in the industry and what the experts term as temporary ‘blip’ in terms of subdued power demand, offtake issues and wage revision. The Maharatna has sustained its growth arc.

Exceeding half-a-billion tonne in the most vital physical facets that is production and off-take, for the second consecutive year, Coal India achieved production of 554.14 million tonnes (mt) in 2016-17. In fact, on the back of higher production by CIL, there was 6.37 per cent decline in coal import. This allowed India to move to a state of surplus coal.

Despite its unprecedented numbers, the company was unable to hit its set targets. Largely, due to lack of volumes — among a host of other issues — given the slowdown in power generation and coal demand in the country.

Other than the dim economic condition in FY17, CIL  had to face wage revision that came into force during the year and hit the company’s cost and profit margins. Its net profit stood at Rs 9,267.75 crore down from last year’s Rs 14,267.93 crore with expenses taking a toll on its balance sheet.

That being said, CIL interim chairman Gopal Singh believes that the incremental increase in pay will be compensated by increase in productivity. The company is also looking to bring down the cost of production by closing down loss-making underground mines.

In 2016-17, CIL had booked 113.8 mt coal through an e-auction. The move was aimed at improving margins, though there had been a gradual decline in price. “The management is targeting e-auction sales of 120 mt in FY18,” says Singh, citing the revenue potential as the margins improve with e-auction prices inching up.

Coal India, which accounts for over 80 per cent of the domestic coal production, is now eyeing 1 billion tonnes in output by 2019-20.

“This year, we have set ourselves a capex target of Rs 8,500 crore, but the actual number maybe more as we have to grow to the milestone of 1 billion tonne. So we have to build the capacity,” says Singh.

According to Motilal Oswal experts, the company has increased its sizing, rapid loading and steam coal charges, which will generate additional annual revenues of Rs 5.3 billion. Besides, the coal demand has started accelerating with Coal India back on track to achieve the dispatch growth estimates.

“The FY17 operating performance was impacted by multiple headwinds. The impact of grade slippage, fall in e-auction prices, weak demand and de-stocking, and wage hike provisions led to underperformance. The headwinds are now behind us; the FY18 quarters fully reflect the impact of grade slippage, while demand and e-auction prices are improving,” says Sanjay Jain, senior vice-president (research) at Motilal Oswal Securities.

Apart from prepping up to bounce back from the recent lows, the biggest miner in the world is now contemplating to foray into mining of new minerals and metals such as iron ore, nickel, bauxite and copper. This is a part of the company’s diversification strategy as the country moves towards the low carbon road.

“Mining is our strength,” asserts Singh who vouches for CIL’s success in the venture.