Coal India shows softer Q2 on lower-than-expected e-auction realizations

Strong demand for coal meant the company’s sales volume grew 9.7% year-on-year to 147.35 million tonnes (MT). Company Revenue 21,292.50 crore also grew 9.3% year-on-year in line with volume growth. Thus receipts did not improve much as expected. Analysts were expecting a significant improvement in e-auction realizations, given the steep rise in international coal prices.

e-auction prices 1,594 per tonne sequentially almost flattened and was comparable with 1,569 per tome in the previous quarter.

Coal India’s reported net profit (ex-overburden removal) also declined 17% and 2% sequentially as compared to Q2FY20 and was below analyst estimates. Analysts at JM Financial said that the reported net profit decreased their estimates by 13%, mainly due to flat sequential e-auction prices, while international coal prices (leading to e-auctions). Indicators) have increased by 50% in Q2.

However, the company management has indicated that there is a gap of two-three months between allotment and distribution in the e-auction proceeds. Thus profit will be seen in the coming quarters. Analysts say the August-September 21 e-auction prices are at a 42-59% premium over the fuel supplied under benchmark or price agreements. The e-auction premium was 14% in the second quarter. While e-auction receipts may see some uptick in the third quarter, it may cool slightly in the fourth quarter and onwards as international coal prices also slide below the peak.

Meanwhile, the company is also looking at raising the prices of coal supplied under fuel price agreements. If it does, it will support the company’s future earnings prospects and reduce worry over expected salary increases.

Analysts at JM Financial said they remain positive on the company for a long time, riding on attractive dividend yield (11% in FY2011 pay-out), 10-12% earnings CAGR in FY2011-24. Factors contributing to earnings include expected 4-5% volume growth, higher near-term e-auction prices and the benefit of operating leverage as volumes or sales increase while costs remain largely constant. The expected volumes may increase with the increase in power demand in FY 2013-24.