Coal India Ltd’s (CIL’s) financial performance for the quarter ended 31 March has been better than analysts’ estimates polled by Bloomberg, but higher employee costs have taken away the sheen and the quality of earnings has been weak.
For the quarter, the coal producer’s consolidated revenue increased 29% over the same period last year to Rs 19,418 crore. That’s the strongest revenue growth in any quarter last fiscal.
What fuelled that growth? Well, sales volume was the strongest in the March quarter compared with the first three quarters of the last fiscal.
Blended price realizations, too, were strong at Rs 1,581 per tonne, representing a 20% increase on a year-on-year basis. That’s also because last year’s March quarter had only one month’s impact of the price hikes at the end of February 2011.
But unfortunately for investors, CIL’s strong revenue growth did not translate into a commensurate growth at the net profit level. Blame higher-than-expected employee costs for that.
Net profit declined 5% to Rs 4,013 crore, lower than some analysts’ estimates. Moreover, the decline was restricted mainly because of a sharp 57% increase in other income.
Operating performance was weak, with operating profit declining by 24% to Rs 3,785 crore. While it was anticipated that employee costs would be high in the March quarter, the quantum has been higher than expected.
Mint’s Pallavi Pengonda says that while Coal India’s fourth quarter profits are better than expected, the quality of earnings are weak.
CIL’s production target for this fiscal year is 464 million tonnes (mt), which represents a 6.5% increase compared with 2011-12. But then, the less said the better about the company meeting its production forecast, since it missed its revised production target, too.
On the despatch or offtake front though, Chintan Mehta of Sunidhi Institutional Research says: “To meet their despatch target, the company needs to despatch about 9 mt per week. Till 20 May (seven weeks), production is 56.25 mt, coal offtake has progressed to 63 mt, which is as per their required run rate. However, in monsoons, they need to liquidate more inventory.”
Investors would do well to keep a tab on the company’s offtake numbers. The CIL stock has declined by 24% to Rs 315 from its highs in the past one year and is currently trading at 12 times estimated earnings for this fiscal.
Although valuations appear attractive, regulatory concerns such as the fuel supply agreement issue may keep meaningful upsides at bay in the near term. It goes without saying that investors would cheer price hikes, but with inflation already so high, raises may not be easy.
Graphic by Naveen Kumar Saini/Mint
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