Coal India to post bumper net profit in Q3 with higher prices for e-auction sales

For people like Naresh Chauhan and his wife Rina Devi India’s economic slowdown resulting from the pandemic has intensified their dependence on coal. The two have lived in a village at the edge of the Jharia coalfield in Dhanbad all their lives. Accidental fires, some of which have been blazing for decades, have charred the ground and left it spongey. Smoke hisses from cracks in the surface near their hut. Fatal sinkholes are common. The couple earn $3 a day selling four baskets of scavenged coal to traders. (Image: AP)

World's largest state-run coal producer Coal India is seen reporting bumper earnings for the quarter ended December. The company will declare its quarterly numbers on January 31.

Kotak Institutional Equities estimates the coal major’s net sales for the December quarter at Rs 33,140.5 crore, which implies an increase of 27.5 percent on-year and 20.3 percent on-quarter as against Rs 25,991 crore a year ago.

Net profit may spike 85 percent on-year and 39.5 percent on-quarter to Rs 8,430.1 crore. In the December quarter of 2021, the company posted a post-tax profit of Rs 4,556.5 crore.

Higher prices for e-auction sales will likely continue to drive earnings for Coal India, the brokerage firm added.

The brokerage firm sees marginal growth in dispatches at 176 million tonnes, up 1 percent YoY, in third quarter of FY23. It believes that continued strength in e-auction realisations will help blended realisations rise to Rs 1,885 per tonne in the December quarter.

Higher global coal prices have boosted e-auction realisations in 2022, Jefferies had said in its report dated December 30, 2022.

Motilal Oswal Financial Services pointed out that management guidance on coal availability for e-auction is critical for the profitability growth of the company.

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Coming to wages, Kotak Institutional Equities pointed out that the coal major had been making a lower provision for wages due over the past 15 months, and the current settlement of a 19 percent revision in employee cost effective July 1, 2021, will likely weigh on reported earnings for second half of FY23 to the extent of Rs 60 billion.

The higher wage bill and declining prices of imported coal will likely start weighing on reported earnings that have so far benefited from rising e-auction realisations, the brokerage firm said.

“Our back-of-the-envelope calculation suggests an under-provision of Rs 60 billion over the past five quarters that will likely be accounted in 2HFY23 employee cost,” said Kotak Institutional Equities.

Some analysts believe improving power demand and substitution of imported coal owing to elevated prices, have allowed Coal India to report strong dispatch growth.

The prices of imported coal have seen a rapid decline in recent months, while the provision for wage cost and higher capital expenditure cost is seen containing cash generation.