The trend of one good quarter after a bad one continues for the seventh in a row for Coal India Ltd (CIL). The last quarter was a good one. Sure, consolidated net profit growth for the quarter ended December is slower than what the company reported in the September quarter. But the good news is that its performance is better than Street estimates. Net profit came in at Rs.4,395 crore, representing a year-on-year (y-o-y) growth of about 9%. In the September quarter, net profit had increased by around 19% to Rs.3,078 crore. Analysts in a Bloomberg survey had estimated December quarter net profit at Rs.4,172 crore.
Two main reasons are responsible for CIL’s better-than-expected December quarter net profit. One, the company’s revenue was higher than estimates. For the quarter, total operating revenue increased 12.8% over the same period last year to Rs.17,325 crore. This is better than the about 11% revenue growth in the September quarter.
Revenue growth was better because of good sales volumes and price realization. According to an analyst, the e-auction price realizations have increased substantially on a sequential basis. While average blended price realizations increased marginally from the September quarter, they increased 3% on a y-o-y basis to Rs.1,438 per tonne.
But a comparatively faster rate of growth in expenditure meant that CIL’s December quarter operating performance was weak and operating profit declined on a y-o-y basis. What played a big role in boosting net profit then was the strong 26% increase in other income to Rs.2,360 crore. Also, the tax expense remained largely unchanged, lifting net profit growth.
What next then? CIL is likely to meet its offtake target for this fiscal. The bad news is that the production target is expected to be missed. Anyhow, for CIL, the sales volume numbers are relatively more important.
So, in all probability, if the company misses its production forecast, it may not really turn out to be a big dampener.
However, the CIL stock trades at 12 times estimated earnings for the next fiscal. Those valuations appear to be on the higher side for a commodity business such as that of CIL.
An important trigger would be price hikes in the future, but the company’s chairman maintains that there is no immediate proposal to raise prices. The December quarter results are unlikely to warm investors.