Coal India shares slumped 3 percent on May 8 morning, as a dent in quarterly profit resulted in investors selling of shares even though the company reported its highest sales in the March quarter and also in FY23.
Coal India on May 7 reported a consolidated net profit of Rs 5,527.62 crore in the March quarter, down 17.7 percent from a year ago. Consolidated revenue for the quarter stood at Rs 35,161.44 crore, up 17.3 percent year on year.
Wage bill weighs heavy
During the quarter, the gains from rising coal prices under the fuel supply agreement (FSA), up 5 percent YoY to Rs 1,550 per tonne, amid better product mix and increased share of the non-power sector, was offset by one-off higher provisioning of employee cost, Nuvama Institutional Equities said.
“CIL (Coal India) made full provision of employee cost, post-agreeing to wage hikes of 19 percent with effect from 1 July, 2021 and made a one-time provision of Rs 58.7 billion, which included arrears of around Rs 45 billion from earlier quarters,” the brokerage firm said.
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CLSA said wage provisions were a drag on the company’s quarterly performance. It believes e-auction realisations will fall further on a decline in global prices. The brokerage firm, however, has a “buy” rating on the state-run mining company with a target price of Rs 280.
Though e-auction sales at 16.40 MTs were lower by 41 percent in volume terms in Q4 compared to 27.65 MTs in the year-ago quarter, higher premiums under the e-window helped Coal India in cranking up e-auction sales by Rs 690 crore.
Renewables remain unreliable due to challenges related to availability, costs, storage or safety and hence, the dependence on coal is likely to increase in the near term, Motilal Oswal Financial Services said.
“The integration of all five different modes of auction into a single e-auction has led to better price discovery for coal and resulted in a structural shift in e-auction premiums,” the brokerage firm said.
Coal India remains the top pick for Motilal Oswal in the metals and mining sector. At the current market price of Rs 237, the stock trades at an inexpensive valuation of 3.9 times FY24 EV/EBTIDA.
Nuvama Institutional Equities said the cost peaked for Coal India in FY23, with full provisioning of wage hikes. It has already factored in lower e-auction prices and any rise in FSA coal price is an additional trigger, it said.
The brokerage firm has retained its “buy” rating on the stock, with the target price raised to Rs 301 from Rs 295.
JP Morgan, which has an “overweight” call on the stock with a target price of 290, said the company’s earnings are below estimates, primarily due to higher provisioning on the wage agreement.
The foreign brokerage firm said that EBITDA would be at Rs 13,300 crore if adjusted for wage provisioning.
The company declared a final dividend of Rs 4 a share, taking the total dividend to Rs 24.25 for FY23.
At 9.29 am, the stock was quoting at Rs 231.25, down 2.57 percent.
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