Coal India Limited, (CIL) was expected to benefit from higher international prices of the commodity in the March quarter (Q4FY22) as its e-auction volume was expected to boost realizations. It’s played. The average e-auction premium for coal sold through FSA (Fuel Supply Agreement) route during the quarter was 65%. For perspective, that measure was up 42% in Q3.
Adjusted Ebitda of CIL (excluding non-cash stripping activity adjustment expense) increased by 56 per cent year-on-year. 12,468 crore in Q4. Ebitda is earnings before interest, taxes, depreciation and amortization. Analysts at Motilal Oswal Financial Services Ltd believe the company’s adjusted Ebitda per tonne is at a record high of Rs 692 in Q4.
What’s more, the premium in the e-auction segment is expected to remain the same in the coming days. “Inventory of coal in non pit-head plants is at 25% of the standard levels; And international coal prices hover around $415/mt against $50/mt in 2020,” said Rohit Natarajan, analyst, Antique Stock Broking Ltd., in a report.
Meanwhile, CIL produced 209 million tonnes of coal in 4QFY22, up 3% year-on-year. In FY23, the plan is to achieve 700 million tonnes in production, with an e-auction target of 15-20% of the total production.
Analysts at Motilal Oswal say the current e-auction volume for CIL has been below normal run-rate due to strong demand from the FSA segment. But once the rising demand subsides, they expect the company to be able to sell more coal in e-auctions. “The strong demand for coal in the international market is likely to eventually translate into higher e-auction premium,” said Motilal Oswal’s report.
Shares of India’s largest coal producer have outperformed the benchmark index Nifty 50, which has fallen 9.5%, having appreciated 15% so far this calendar year.
Going forward, a major trigger for the stock remains the much-awaited FSA price hike. Note that FSA prices were last raised in January 2018 and a substantial increase in FSAs is important to compensate for pending wage hikes. The company’s management had indicated that negotiations for wage revision were likely to end only by the end of FY23.
Commenting on CIL’s outlook, Jefferies India said, “Long-term concerns regarding its ability to deliver sustainable volume growth, lack of a well-defined price escalation policy, rising employee cost and ESG remain.”