After a disappointing September quarter, Coal India Ltd (CIL) delivered better-than-expected earnings for the December quarter. Two reasons that made it possible include lower-than-expected wage costs (sequentially little changed) and good growth in other income (up 48% from a year ago). This meant that the state-run coal miner’s consolidated net profit for the December quarter increased 54% over the same period last year to Rs 4,038 crore.
CIL maintains that the current quarter will include the final impact, if any, of the finalization of wage settlements. Hence, investors would do well to keep tab on that.
For the December quarter, revenue rose 21% to Rs 15,350 crore from a year ago, boosted by a 21% increase in the firm’s price realization, which jumped to Rs 1,392 per tonne from Rs 1,149 last year. Price hikes made in February last year through a differential pricing strategy have helped realizations.
While that’s good, it’s painfully evident that CIL is struggling with sales volume, or offtake. For the December quarter, volume remained flat compared with a year ago. Of course, that looks better compared with the September quarter, when volume fell 5%. Still, December quarter volume did little to cheer investor sentiment.
On the production front, too, while there’s some improvement from the September quarter, it does not offer much comfort. Coal production was flat in the December quarter and, in fact, had declined by 11% in the previous quarter. But CIL’s revised production forecast for fiscal 2012 (FY12) stands at 440 million tonnes (mt). For the nine months ended December, the company’s production stands at 291 mt. Therefore, to achieve the forecast, CIL’s production in the March quarter should be about 149 mt, which represents a 12.7% increase from a year ago, a tall order. So, in all likelihood, the company will miss its production target for the year.
Also See | Quaterly Perfomance (PDF)
Last week, this column wrote that negative news flow (reduction in the new gross calorific value-based prices, fuel supply agreement issues) had affected the stock’s performance in the recent past. For now, sentiment on the stock appears weak from a short-term perspective. However, any price increase announcements, if they happen, will be a positive.
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