(Bloomberg) -- Coal India Ltd. signed an agreement with workers unions to raise salaries of its non-executive staff, ending months of negotiations over the increase that affects pay until 2021.
The state-run miner will incur an average annual cost of 56.67 billion rupees ($868 million) because of the rise, it said in a stock exchange filing on Tuesday. The increase will be effective for five years starting retroactively from July 2016 and will apply to its 298,000 workers, the company said.
The salary increase puts further pressure on the company’s earnings already hurt by degradation of coal quality at several mines. A revival in demand seen over the past two months must be sustained for the company to seek higher prices from customers to help offset the additional labor costs, said Rupesh Sankhe, an analyst at Reliance Securities Ltd.
Coal India will increase gross pay for non-executive workers by 20 percent, Chairman Gopal Singh said at a press conference Tuesday evening in New Delhi. The wage increase will add 44 billion rupees in costs in the first year.
The wage increase is higher than expected and Coal India will need to raise its prices by an average 95 rupees a metric ton, based on annual sales of about 600 million tons, to offset the higher wages, analysts at JPMorgan Chase & Co. wrote in a note Tuesday.
The company’s earnings have dropped year-on-year in the past five consecutive quarters. Provisions for a salary increase have been responsible for the declines on the last four occasions, according to the company filings. Coal India has already set aside 28 billion rupees for the wage increases. Additionally, salaries of executive employees are also set to be revised from the start of the current calendar year.
Coal India shares declined as much as 1.1 percent to 282.60 rupees in early trade in Mumbai on Wednesday. Shares have declined about 5 percent this year, compared with a 20 percent gain in the benchmark S&P BSE Sensex.
The Kolkata-based miner expects double digit growth in production and shipments this month, Singh said, adding that he expects shortages to ease in a couple of months as the company’s output rises and power demand tapers during winter. The company reported its second straight year-on-year increase in monthly production in September, following a surge in demand from power plants.
Watch the full interview with Coal India CMD Gopal Singh on the impact of the wage pact here.