Bhavesh Chauhan, metal analyst at Angel Broking expects Coal India to ramp up production by 5.5% growth in FY13.
He said that over the last five years Coal India has struggled to raise production and its five year CAGR has been close to 5%. However, exceeding 5% for the next couple of years would be difficult, given that there are no new mines having full-fledged clearances.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Do you fear that there maybe a shortfall in the company being able to supply what they promise? Do have any indication of what the penalty might be and what the impact will be on the P&L?
A: Yesterday’s directive president to supply 80% of the fuel requirements to new power companies is kind of positive for the Coal India. Basically what it says that you try and supply at least 80% of the coal required to power companies, but penalty will be as per whatever Coal India thinks.
So, it means that Coal India might try its level best to raise production. Try and supply as much coal as possible, but in case it does not, Coal India might end up paying absolutely no penalty at all or even very miniscule penalty. This partially takes off a monkey of its back with this new directive.
Q: We had the production figures of Coal India being released and they weren’t too bad. What’s your expectation on FY13 realistically? How much do you think Coal India will be able to ramp up its production in this fiscal?
A: We believe it will be able to do 5.5% growth for FY13 and then again 4-4.5% growth over the next year. Over the last five years Coal India has struggled to raise production. Five years CAGR has been close to around 5%. Increased coal supply to these new power companies looks quite difficult, but having said that because of penalty this news is kind of positive for Coal India, not so much for the power companies because we don’t foresee where does the coal come from basically even if Coal India is willing to supply.
Q: Because of so much of policy initiative and scrutiny of the company, policy interest in the company do you expect that it could up its production little more than the Compounded Annual Growth Rate that you are speaking about 5%? Could it better simply because it is on the radar, it is under focus?
A: It looks difficult to grow beyond 5% at least for the next couple of years given that there are no new mines that have full-fledged clearances. Once they have clearances it might take a couple of years to develop the mine and start production. For the next two years it looks difficult that the Coal India will be able to ramp up its production significantly.
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