Coal India Ltd (CIL), the world’s largest coal producer, was expected to deliver strong financials for the quarter ended March, thanks to the price hikes it had taken by introducing a differential price strategy for sectors other than power, fertilizers and defence services from 27 February.
The impact of the price hikes for one month during the quarter was supposed to give a leg-up to the numbers this time. Also, global coal prices have increased, which were expected to result in better realizations for sales through electronic auctions.
But CIL’s March quarter financials have surpassed analysts’ estimates by a good margin. According to a Bloomberg poll, revenue and net profit were pegged at Rs14,750 crore and Rs3,723 crore, respectively; the company reported consolidated revenue and net profit of about Rs15,000 crore and Rs4,220 crore, respectively.
That represents an 18% rise in revenue and a 61% improvement in net profit on a sequential basis. Unfortunately, last year’s March quarter numbers are not available for a year-on-year comparison, as the company got listed only on 4 November.
A sequential comparison would not be appropriate for CIL, given the seasonal nature of the business, and also the fact that the fourth quarter is considered to be the strongest one.
One of the main reasons for the strong performance of the company is the strong price realizations, which improved by 14.6% to Rs1,316 per tonne, higher than Street estimates. On the other hand, sales volumes grew 3.2% to 114 million tonnes, which disappointed analysts.
Strong realizations and lower employee costs as a percentage of revenue boosted CIL’s operating performance and resulted in an operating profit margin of 34.6% for the quarter, much higher than the 27% margin registered for FY11.
Considering all that, it’s not surprising that the company’s stock was up 3.2% in reaction to the numbers, on a day when the benchmark Sensex of the Bombay Stock Exchange was up by 1%. It’s well known that CIL’s scrip has outperformed the Sensex since it got listed. The stock trades at Rs389, well above its issue price of Rs245.
But the bigger question is: will the dream run continue? At least in the near term, the upside seems limited.
For one, there is uncertainty on the quantum of wage hike that is due to be finalized in July. Secondly, there are concerns regarding logistics in terms of the availability of rakes. While the current rake availability has improved, there could be issues during the monsoon.
On the brighter side, the full impact of the price hikes taken in February would reflect in the current quarter.
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