Coal India Q1 Preview: Net profit likely to drop 40% amid lower e-auction premiums

During the quarter, Coal India's production rose 7.9 percent YoY to 189.3 million tons, while dispatches increased 5.2 percent YoY to 196.6 million tons.

Coal India is projected to report a decline in net profit for the April-June quarter, primarily due to reduced eAuction premiums, a consequence of lower global coal prices and adequate domestic production.

Bloomberg estimates indicate that Coal India's net profit is expected to be Rs 5,436.1 crore, reflecting a 40 percent decrease quarter-on-quarter (QoQ) and a 2 percent decline year-on-year (YoY). Revenue for the period is anticipated to be Rs 36,792 crore, marking a 2 percent increase YoY but a 4 percent decrease QoQ. EBITDA is forecasted to be Rs 6,807 crore, down 40 percent QoQ and 1.3 percent YoY.

During the quarter, Coal India's production rose by 7.9 percent YoY to 189.3 million tons, and dispatches increased by 5.2 percent YoY to 196.6 million tons. Despite lower e-auction premiums, higher overall volumes may partially offset revenue losses. The company plans to sell 15 percent to 20 percent of its total volume through e-auction, with the remaining 80 percent secured through the Fuel Supply Agreement (FSA) route, thus reducing reliance on e-auction premiums.

Kotak Institutional Equities noted that earnings comparisons with the same quarter last year are complicated by changes in the accounting policy for overburden removal provisions.

What factors are driving the earnings?

E-Auction premiums: E-auction premiums during April-May 2024 stood at 48.5 percent, with analysts expecting 50 percent for 1Q FY25E, down from 143.5 percent in 1Q FY24. This decline should reduce profitability, with forecasted Adjusted EBITDA (excluding overburden) at Rs 428/t in 1Q FY25E.

Drop in average selling price: Some analysts predict that Coal India's EBITDA will decrease quarter-over-quarter, attributed to a potential drop in blended ASPs and seasonal factors. Year-over-year estimates are not comparable due to accounting changes.

Blended realisations are projected at Rs 1,691/ton ( down 4.5 percent YoY), reflecting a moderation in e-auction realizations to Rs 2,500/ton (down 33 percent YoY). Nuvama expects EBITDA per ton of sales expected to fall 12 percent due to lower realisation from sales in e-auction.

Key Things to Look For:

1. Volume Outlook: Expectations for production and dispatch volumes for the fiscal year 2025 and 2026 and e-auction premium and share will be the key things to watch for.

3. Cash Tax Rate: Impact of adjustments in overburden accounting on the cash tax rate.

4. Management commentary on volume ramp-up will be key to monitor

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