Coal India Ltd (CIL) missed its September quarter net profit estimates by a huge margin. The company is feeling the strain of supplying more coal to power plants by cutting down quantities allotted to e-auctions which fetch better realizations. And even in the fuel supply agreement (FSA) route, CIL reported a 5% quarter-on-quarter drop in coal realization at 1,260 a tonne, due to higher sales of low grade coal and more sales to power utilities than to other sectors, according to Nirmal Bang Institutional Equities.

While e-auction quantities declined, realizations were higher but not enough to compensate for the lower proportion. As a result, CIL’s average realizations in the September quarter improved by a mere 0.5% over the same period last year to 1,419 a tonne. “Lower e-Auction proportion of 9.6% versus 14% (1QFY15) and 11.8% (2QFY14) also contributed to the realization decline, and was partially offset by sharply higher prices sequentially ( 2,496/t, 11.2% QoQ, 12.4% YoY)," said an HDFC Securities Institutional Research note.

Nevertheless, absolute e-auction volumes were still better than expected. Anyhow, a paltry 1.3% growth in total sales volumes (or offtake) meant that CIL’s consolidated revenues for the September quarter increased by only 1.7% over the same period last year to 15,678 crore.

Operating costs such as employee costs and power and fuel continued to remain high for the coal producer. This combination of muted realizations and higher costs meant that CIL’s net profit declined by 28% year-on-year to 2,192 crore, which was much lower than the estimated figure of 3,033 crore based on a Bloomberg poll of analysts.

Sure, shares of the company rose by 1.3% following the results announcement, but CIL’s share has declined by 17% from its high in June.

Investors are clued in to its woes. For one, missing its offtake and production targets is a persistent worry. The company’s performance in October was strong, with production and offtake increasing by 15% and 10% year-on-year, respectively, but that was on a lower base. In April-October 2014, CIL achieved 97% and 94% of its production and offtake targets, respectively, which does not inspire confidence. This means growth in the remaining five months of the fiscal has to be faster to meet its output targets.

However, analysts aren’t hopeful that will happen. “We maintain that CIL’s MoU-based targets for FY15F (507 million tonne (MT)/ 520MT for production/offtake) appear unreasonable," wrote analysts from Nomura in a note on 3 November, adding that implied production and offtake growth for the balance five months of this year to achieve target levels is 13% and 19%.

As things stand, offtake improvement and price hikes, when they happen, will augur well. Till then, its performance is likely to be under pressure.

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