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Oct 11, 2017 11:33 AM IST | Source:

Coal India wage hike: Brokerages see earnings hit this fiscal; stock down 1%

Believe that the hike was higher than factored in hike figure and it could also mean an impact on dividend payout.

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Coal India fell around a percent intraday on Wednesday as investors turned wary of its wage hike announcement. Brokerages too said that the hike was higher than anticipated.

The state-owned firm signed a wage agreement with workers' unions for a period of five years which would have an estimated impact of Rs 5,667 crore annually to the miner. The "Memorandum of Agreement for National Coal Wage Agreement-X has been signed on October 10 for a period of five years from July 1, 2016 to June 30, 2021", Coal India said in a filing to BSE stock exchange.

"This agreement will impact 2.98 lakh coal workers and the total estimated average annual impact would be Rs 5,667 crore," the filing said. S Q Zama, the Secretary-General of Indian National Mine Workers Federation told PTI of the five central unions in the coal industry, only three -- AITUC, CITU and BMS -- signed the wage pact.

The three unions of AITUC, CITU and BMS represent 25-30 percent of the 3.6 lakh coal workers of both of CIL and Singareni Collieries Company Limited (SCCL), Zama said. The central trade unions at the coal PSU had been demanding 25 percent increase in gross wages as on June 30, 2016, plus 4 percent as perks.

DD Ramanandan, General Secretary of CITU-affiliated All India Coal Workers Federation had earlier said that the unions had settled for 20 percent minimum guaranteed benefit as the management was earlier not contributing to the medical scheme but now has agreed to provide Rs 18,000 per person. "We have reached an understanding with the Coal India management for 20 percent minimum guaranteed benefit," he had said.

Brokerage: Motilal Oswal | Rating: Buy | Target: Raised to Rs 335

The broking firm believes that the wage hike could impact earnings by 6 percent in FY19 and 11 percent in FY18. Further, the average hike of 22 percent is higher than estimates of 18 percent. On the back of this announcement, estimates for annual wage bill have risen to Rs 36,400 crore in FY18 and Rs 36,200 in FY19. Having said that, it expects the stock to get re-rated and there are many levers to drive the upside. In terms of upside triggers, the brokerage highlighted reasons such as shut down of loss-making mines, cost optimization and price hikes.

Brokerage: JPMorgan | Neutral | Target: Rs 290

The global research firm sees a higher than expected annual impact of the wage bill and believes that the company would require a large price hike to pass on the cost. With sales volumes of 600 MT, implied price hike comes to Rs 95/tonne. Having said that, it also pointed to an additional gratuity burden that is yet to hit the financials. The stock, it said, could trade higher with wage cost behind and large annual dividend likely to be announced over the next 3-4 months.

Brokerage: Morgan Stanley | Rating: Underweight | Target: Rs 221

The brokerage house said that the wage hike has been settled at two-times privisions and it expects cash out flow of Rs 8,000 crore. It also implies downside on FY18 dividend payout. Having said that, the management could lower the impact in the medium term by cost optimization methods.

At 11:30 hrs, Coal India was quoting at Rs 283.50, down Rs 2.00, or 0.70 percent, on the BSE. It touched an intraday high of Rs 286.40 and an intraday low of Rs 282.85.
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