Coal India’s Q3 Profit Plunges 20% On Lower E-auction Revenue, Pay Hikes

Coal India Ltd., the world’s biggest coal miner, reported a 20.3 percent drop in net profit due to lower e-auction realisations and higher employee costs in the three months ended December 2016.

Net profit for the quarter stood at Rs 2,884.5 crore compared to Rs 3,617.2 crore a year ago, the Kolkata-based miner said in a stock exchange filing. Revenue rose 4 percent to Rs 19,704.5 crore from Rs 18,971.5 crore a year ago.

Bloomberg consensus estimate of 18 analysts for net profit and revenue stood at Rs 3,059 crore and Rs 20,105 crore, respectively.

The government-owned company reported earnings based on the newly introduced Indian Accounting Standards, which are in line with the International Financial Reporting Standards.

Earnings before interest, tax and depreciation (EBITDA) fell 21.3 percent to Rs 3,855 crore, while EBITDA margin contracted 600 basis points to 19 percent for the December-ended quarter.

The company revises salaries of over 3,00,000 employees every five years, with the last increase taking effect from July 2011. In the third quarter, employee costs rose 10.4 percent to Rs 8,232 crore due to salary hikes.

The employee benefit expense eats up approximately 40 percent of the total income from operations and will continue to remain high in the fourth quarter on account of a wage hike.

State-run miner, which produces more than 81 percent of India’s coal, earned an average price of Rs 1,339 per tonne during the quarter compared to Rs 1,345 a year ago.

Coal production during the period rose 2.6 percent to 147.71 million tonnes, while shipments rose 3.5 percent to 142.66 million tonnes, according to provisional estimates by the company. The company continues to face subdued demand from power producers, which account for three-fourths of its shipments, due to high inventory levels.

Coal India sold about 17 percent of its produce in auction sales outside of long-term contracts. These sales are usually at a premium to the contract prices, which makes their contribution to earnings bigger than their share in sales volumes. A steep decline in electronic auction prices dragged profit lower.

Coal India earned Rs 1,564 a tonne on auction sales, compared with Rs 1,866 a tonne a year ago. Average realisation for coal sold through term contracts was at Rs 1,289 per tonne in the quarter ended September 30.

In the last 12 months, share price of Coal India has risen 3.4 percent, while the Nifty Metal Index rose 93.5 percent during the period. Of the 38 analysts tracked by Bloomberg, 63 percent have a ‘buy’ rating on the stock.