Coal India’s Output Falls In First Quarter, Focus On Cutting Manpower Costs
Day laborers load coal into trucks at a coal mine in Jharkhand, India. (Photographer: Sanjit Das/Bloomberg)

Coal India’s Output Falls In First Quarter, Focus On Cutting Manpower Costs

State-run miner Coal India Ltd.’s output and dispatches declined in the ongoing first quarter amid lower demand as the Covid-19 lockdown disrupted economic activity.

The company will cut employees costs, about 44% of the net sales in 2019-20, by reducing manpower substantially in the next 2-3 years, the management of the world’s biggest coal miner said in a post-earnings conference call. The company will restrict the manpower intake to mandatory positions and will renegotiate wages by July next year.

Profit, revenue and operating profit fell and margin narrowed in the quarter ended March for Coal India as its realisations fell.

That’s because e-auction realisation was down 24% year-on-year, premium over fuel supply agreement fell to 45%, the lowest since quarter ended September 2017, according to Edelweiss Securities. Receivables more than doubled to Rs 14,400 crore as customers, particularly state utilities, did not clear dues, it said.

The miner expects an improvement in receivables from September.

Concall Highlights

Outlook

  • Production loss and reduced premium on coal caused net profit to fall.
  • Good rainfall led lower coal-fired power generation and higher production by thermal units running other fuels.
  • Dispatches tumbled 22% and production fell 11% year-on-year in the quarter ending June.
  • E-auction volume estimated at 36 million tonnes in the first quarter.

Cost Optimisation

  • Employee benefit expenses rose 2% year-on-year in fourth quarter0.
  • Wage renegotiation from July 2021.
  • Employee costs to come down substantially in the next two to three years.
  • Restricting intake of manpower to mandatory positions.
  • Manpower reduction of 13,000-15,000 each for next four to five years.
  • Aims to reduce overtime expenses related to manpower partially for the year. These stood at Rs 2,500 crore in 2019-20.
  • Stopping production at not-so-efficient mines; shut 82 mines over last three to four years and plans to close a few more this year.

Higher Receivables

  • Liquidity situation at distribution companies has affected financials; not expected to improve.
  • Discom dues increased to Rs 1.23 lakh crore by April.
  • Lack of payment from discoms led to higher receivables.
  • Realising all dues from largest consumer NTPC Ltd.
  • Getting 60% of monthly receivables from state electricity boards.
  • Receivable situation to improve only after September.

Capex Outlook, Debt

  • Capex for 2019-20 stood at Rs 6,500-7,000 crore; and is estimated at Rs 11,000 crore for the ongoing fiscal.
  • Rs 200-300 crore spend on capex in first quarter so far.
  • The company has identified 35 projects for 2020-21.
  • Higher debt due to installation of railway line (funding mix is 30% equity and 70% is debt).

Long-Term Goals:

  • Doesn’t expects to export coal in the near term.
  • Indonesian coal much better in quality and cheaper than Coal India’s.
  • Planned imports substitution (150 million tonnes) from FY21-FY23 would ensure enough demand and efficient production.
  • 1-billion-tonne output is achievable by FY24.

Brokerage Take

Kotak Institutional Equities

  • Maintains ‘Buy’; cuts target price from Rs 230 apiece to Rs 215 per share—a potential upside of 51% from Friday’s close.
  • Flat volumes and lower e-auction revenues weighed on earnings in fourth quarter.
  • Increase in working capital keeps operating cash flow in check, lowers capital expenditure in FY20.
  • Revised estimated earnings for FY21 and FY22 by 10% and 16%, respectively, to factor lower e-auction prices.
  • Coal India remains attractively valued at 4 times PE multiple and 4 times EV/Ebitda on estimated adjusted earnings for FY22.

Motilal Oswal

  • Better-than-estimated fuel supply agreement realisation, e-auction volumes.
  • Offtake flat year-on-year at 164 million tonnes. E-auction volumes rose 26% year-on-year to 21 million tonnes.
  • Coal India’s adjusted Ebitda down 9% year-on-year but higher than estimates on account of higher revenue.

On Monday, Coal India shares fell 4.79% to Rs 135.15 apiece on the BSE while the benchmark Sensex shed 0.60% to end the day at 34,961.52 points.

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