Coal India ups prices, may boost revenue by 11% next year

Coal India ups prices, may boost revenue by 11% next year

Mumbai: Coal India Limited (CIL), the world’s largest coal miner, will get Rs6,200 crore ($1.4 billion) in additional revenue next fiscal year and sees realizations go up 12.5 to 13% from a revision in coal prices announced on Monday.

The unexpected price increase from the state-run coal miner sent its shares up more than 12%, but raised concerns of higher burden on customers in the power and metals sectors, already reeling from rising raw material costs.

“There will definitely be an impact of the price increase. Primarily for those companies which don’t have long-term purchase agreements, but even those for those that do, there may be some pass-through provision," said Jayesh Shroff, fund manager at SBI Mutual Fund, which owns Coal India shares.

Kolkata-based Coal India accounts for nearly 80% of coal output in India, where coal demand is forecast to grow 11% a year as Asia’s third-largest economy looks to halve peak-hour power deficit of 14% and boost generation capacity.

According to Thomson Reuters I/B/E/S, the company’s revenue is seen at Rs51,600 crore this year and at Rs57,200 crore for the year beginning on 1 April. Based on those numbers, the additional revenue will raise Coal India’s total revenue in the next fiscal year by about 11%.

Coal India chairman Partha Bhattacharyya said the price increase, would broadly apply to customers in the cement, sponge iron and captive power sectors, and would account for roughly 15% of total volumes.

“We have tried to keep the impact minimum for power and fertilizer sector customers. We tried to absorb the impact of cost increases in the past one-and-a-half years, but had to do pass on some part of the rise," he told Reuters by telephone.

The price hike of about 30% will bring in additional sales of Rs650 crore ($143 million) in this fiscal year that ends on 31 March, the company said, adding its board had approved revision of the coal prices effective from Sunday.

Coal India had last increased coal prices in October 2009. Shares in Coal India, valued by the market at $40.6 billion, rose 10% by 03:00 pm in a Mumbai market trading 0.5% higher.

International prices higher

International coal prices are widely expected to match or exceed the 2008 record price of $125 per tonne due to upward pressure from floods in Australia’s Queensland state as well as production disruptions elsewhere.

Coal India prices coal about two-thirds lower than global prices, in part because of comparatively low quality coal. Despite the price increase, its coal prices would remain between 30-60% lower than international rates, Bhattacharyya said.

The company had consulted with the Indian government ahead of the price increase, he said.

“We will be able to neutralize the impact of wage inflation, and also take care of low volume growth," Bhattacharyya said.

Earlier this month, Coal India lagged market estimates for December quarter profit, and said a government ban on new mining projects would hit production.

In November, the government raised $3.4 billion from a 10% stake sale in the company, marking the country’s largest ever initial public offering.