Coal India — Q1 FY23 earnings call

Call held 8 Sep 2022

Management summary

Coal India's CMD Pramod Agrawal led the Q1 FY23 call with confidence, highlighting improved profitability from higher production volumes reducing per-tonne costs and strong e-auction premiums amid elevated international coal prices. The company reaffirmed its 700 MT FY23 target and 1 BT by FY25 ambition. E-auction premiums remained exceptionally high at up to 300% in some cases, though management expected these to sustain given strong power demand and imported coal price linkage.

Highlights

  • Profitability improved significantly due to increased production reducing cost per tonne and higher e-auction realizations

  • E-auction realizations at Rs.4,340/tonne in Q1; premiums reaching 300% in some cases with e-auction prices at Rs.4,500+

  • Production target of 700 MT for FY23 reaffirmed; 1 BT target by FY25

  • Wage provision of Rs.100 crores/month; negotiations ongoing for non-executive wage revision

  • Capex of Rs.16,500 crores targeted for FY23 vs Rs.15,500 crores in FY22

  • E-auction volume of ~20 MT in Q1; expected 80-90 MT for full year

  • Receivables increased from Rs.11,000 to Rs.14,000 crores in Q1 but reduced by Rs.1,000 crores in August

  • MDO contracts awarded for ~100 MT capacity; expected production by FY24-25

Key financials

4 periods

Headline

  • Employee Count
    2,45,000 employees
    YoY -5%
  • Receivables Q1
    ₹14,000 Cr

Q1

  • E-auction Realization
    ₹4,340/tonne
  • E-auction Volume
    20 million tonnes

FY22

  • Capex
    ₹15,500 Cr

FY23

  • Capex Target
    ₹16,500 Cr
    YoY +6.5%

What they filed

Q1 FY27: revenue up 7.8%, net profit up 0.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue31,182 36,859 37,825 42,919 30,187 −3%34,924 −5%46,490 +23%46,255 +8%
EBITDA8,617 12,317 11,790 12,588 6,716 −22%9,331 −24%12,673 +7%12,069 −4%
Net profit6,275 8,491 9,593 8,788 4,263 −32%7,166 −16%10,908 +14%8,850 +1%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Underground vs Open-cast
    1,00,000 employees Underground Workers1,45,000 employees Open-cast Workers

Guidance & targets

Production

  • FY23 Production Production · FY23 · High confidence 700 million tonnes
    I'm quite hopeful that this year will be an outstanding year for Coal India

    — Pramod Agrawal

  • 1 BT Target Production · FY25 · Medium confidence 1 billion tonnes
    by FY25, we should achieve the target...realistically perhaps by FY25, we will reach something higher than 900 million tonne

    — Pramod Agrawal

E-auction

  • FY23 E-auction Volume E-auction · FY23 · Medium confidence 80-90 million tonnes
    about 80 million to 90 million tonnes of e-auction coal

    — Pramod Agrawal

Employee Cost

  • Wage Provision Employee Cost · FY23 · Medium confidence Rs.100 crores/month increasing from Q3
    Rs.100 crores...from quarter three onwards or quarter two, let me see, we will increase this slightly further

    — Pramod Agrawal

Risks & concerns

  • SECL production underperformance at key mines Kusmunda, Gevra, Dipka

    medium

    Land issues at 1-2 villages still pending; Q1 production grew 35% but SECL remains the key risk subsidiary

    Both acknowledged

  • High receivables increase of Rs.3,000 crores QoQ to Rs.14,000 crores

    medium

    Driven by 20% higher power supply volumes; reduced by Rs.1,000 crores in August; will be controlled from October

    Analyst acknowledged

  • Coking coal self-sufficiency remains distant due to ash content and hardness limitations

    low

    Indian coking coal can only substitute 25-30% with stamp charging, 10-15% without; 50 MT coking coal imports likely to continue

    Analyst acknowledged

  • Coal gasification projects facing repeated tender failures

    low

    New model being tried as Coal India doesn't want technology risk; no successful bids yet

    Analyst acknowledged

Areas of evasion (1)

  • Wage negotiation details withheld to protect negotiating position

Q&A highlights

3 direct
Windfall profit risk and e-auction sustainability Direct
We are selling 90% of our coal on SSC etc which is tied-up coal and there is hardly any profit on that...In our case, there is hardly any windfall profit

Addresses market concern about potential government intervention on e-auction profits; management argues e-auction is only 10-15% of total volume

Asked by Pinakin Parekh

FSA price hike prospects amid high profitability Direct
being the monopolist organization, we have to bring all the stakeholders onboard...no government will allow the prices of fuel to increase substantially

Reveals structural pricing constraint - government unlikely to approve FSA hikes when company is reporting record profits

Asked by Atul Jain

MDO contract economics vs departmental mining Direct
total excavation cost, it is slightly higher, 10% to 15% higher...but coal production cost, if you see per se, it is different in different pockets

MDO costs 10-15% higher on excavation but offers reliability advantage; 100 MT already awarded with production by FY24-25

Asked by Mohit Kumar

1 min read 4 chapters

Detailed narrative

Strong Q1 Driven by Efficiency and E-auction

Q1 FY23 saw improved profitability despite higher diesel and explosive costs, as increased production volumes reduced cost per tonne. E-auction realizations averaged Rs.4,340/tonne with premiums reaching 300% in some cases. The company maintained that these are not windfall profits since 90% of coal is sold on regulated FSA prices. Full-year e-auction target of 80-90 MT.

1 Billion Tonne Ambition and Infrastructure

Management reaffirmed 700 MT target for FY23 and 1 BT by FY25 though admitted it may slip to FY26. MDO contracts awarded for ~100 MT including Siarmal (50 MT), Chandragupta, and Kotre Basantpur. Railway infrastructure progressing with Tori-Shivpur third line, Jharsuguda-Sardega doubling, and 35 FMC projects on track for March 2024 completion.

SECL Recovery and Operational Challenges

SECL, the largest subsidiary, faced land issues at major mines Kusmunda, Gevra and Dipka. Kusmunda and Gevra resolved; 1-2 villages pending at Dipka. Q1 production grew 35% YoY but consistent execution needed. Heavy rains in last 15 days affected recovery trajectory. Management expects strong October onwards performance.

Diversification and Solar Investments

Solar target of 450 MW self-consumption with 12%+ IRR assured. Coal gasification with BHEL and GAIL JVs in progress but tender responses remain poor. Alumina project still on drawing board. HURL Gorakhpur plant started; Talcher Fertilisers delayed 18 months. Management insists on minimum 12% project IRR for any new investment.

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