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Sometimes a crisis brings out the best in a company. Take the case of Coal India. As India edged precariously close to blackouts, production at the national miner rose 12.9 percent in FY23, the best in at least a decade. The company kept up the momentum in April, reporting a 7.7 percent rise in production. Off-take by users grew at a faster rate of 8.6 percent.
The company is preparing for another busy year. It is targeting to mine 780 million tonnes (MT) of coal in FY24, 11 percent higher than in FY23. Of this, 610 MT or 78 percent of the coal will be supplied to the power sector.
Coal India’s production continues to fall short of the requirement of domestic coal-based power plants. But the FY23 numbers and FY24 provisional figures indicate renewed momentum at the company. For reference, production at Coal India increased by less than 4 percent annum in a decade to FY22. What is driving this positive change? Better evacuation.
Faced with fuel supply crunch at the power plants, the government focused on removing coal's supply chain bottlenecks. Indian Railways raised rake availability to the company. According to CARE Ratings, rake availability to the power sector increased by 5.6 percent in FY23.
The government and Coal India, on the other hand, began work on 19 first mile connectivity projects to fast-track dispatches. The new facilities can add sizeable incremental output in the next four years, explains Rohit Natarajan, analyst at Antique Institutional Equities. The measures, along with blending of imported coal, should help the power sector tide over the peak summer demand. "Coal inventories through April appeared sufficient to avoid a repeat of the 2022 coal-supply disruptions, but the risk of complications from domestic coal-supply problems remains, as highlighted by a recent strike at Coal India’s Talcher mine that affected production," said Fitch Ratings in a note.
For Coal India, the situation should logically lead to growth in earnings. However, this remains uncertain. While the company has negotiated a pay hike for its employees, it is yet to raise rates for the coal that is being supplied to the power sector under fuel supply agreements (FSAs). The last time the company raised prices for such contracts was in January 2018, according to analysts. With much of the coal sold through FSAs, and India moving closer to national elections, the company should hike rates sooner rather than later.
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Technical Picks: Datamatics, Persistent Systems, HEG, Coriander, Tata Steel and USD-INR (These are published every trading day before markets open and can be read on the app).
R Sree RamMoneycontrol Pro
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