BackCoal India: e-auction comfort, but production lags
A factor that investors would be keenly watching is production
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The year begins on a cheerful note for Coal India Ltd (CIL). The coal ministry on 1 April removed the ceiling on volumes that can be bid for at this year’s electronic auctions, reverting to an earlier system. It means that CIL can increase the share of those volumes.
“During the restricted period, the auction was comparatively less," CIL’s director, marketing, Bipin K. Saxena told CNBC-TV18 news channel on Wednesday. “Now, we will be able to auction more of coal and, based on the production, as production goes up, we will also grow up to a limit of 10-11% (of the total volumes)." Despite the fact that e-auction volumes are lower for CIL in the overall scheme of things, its share of profits from them is higher.
It’s small wonder that the scrip has risen around 7% since 1 April. Although the stock has risen marginally since the beginning of 2015, it’s worth noting the miner had declared an interim dividend of ₹ 20.70 per share.
The outlook, though, is somewhat muted. A factor that investors would be keenly watching is production. For the current fiscal year, Saxena said the company’s production target is 550 million tonne. That implies a growth of 11% over last year. CIL’s past record on maintaining production and sales targets has been far from impressive, and that’s a worry. In fact, the company has missed both the production and offtake targets in the year ended 31 March. Not surprisingly, analysts have assumed lower production numbers in their estimates for this year.
The market will focus on 2014-15 offtake growth and progress of key evacuation lines necessary to improve operational performance in the medium to long term, analysts from JM Financial Institutional Securities Pvt. Ltd said in a note on 4 April. Operational performance in the current fiscal year depends on the availability of evacuation facility as offtake improvement has not kept pace with production growth, resulting in rising inventory they said.
Of course, it goes without saying that any price hike will be a positive for CIL.
The writer doesn’t own shares in the above-mentioned companies.
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