CIL December quarter profitability improves

CIL December quarter profitability improves

Coal India Ltd’s (CIL) quarterly figures will begin to make more sense to investors only after three quarters.

Consolidated revenue for the quarter ended 31 December stood at 12,700 crore and net profit at 2,626 crore. Since it was recently listed, figures for the year-ago period are not available.

So, how should investors evaluate its performance in the December quarter?

Sequential comparison is one option, but CIL’s business is seasonal. Heavy monsoon had impacted its September quarter production.

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Nevertheless, net profit in the September quarter stood at 1,500 crore, which represents a solid growth of 75% for the December quarter on a revenue growth of 8.7%.

Operating performance, too, was strong, helped by decline in employee costs as a percentage of sales to 35%, from 41% in the September quarter. Employee costs were 10% higher on a sequential basis in the September quarter largely on account of bonus payments. As a result, operating profit margin improved to 26.6% from 16% in the September quarter. The December quarter operating margin is higher than the nine-month ended December margin of 23.4% as well.

Production increased by 2.5% on a year-on-year basis to 113.85 million tonnes (mt) and offtake was 3% higher at 110.52 mt. Accordingly, realizations came in at 1,148 per tonne compared with 1,120 per tonne in the September quarter.

The company has started a consultation process on price hikes. “Given where inflation is, we do not expect any large price increases in the near term, but a more moderate 3-4% as more likely, with more concrete notified coal price increases closer to the wage agreement finalization," wrote analysts from JPMorgan in a note to clients earlier this month.

In the recent past, CIL has reduced its production volume guidance to about 440 mt for FY11 compared with earlier guidance of 460 mt due to environmental and Comprehensive Environmental Pollution Index-linked issues.

Output guidance for FY12 has been reduced to 448 mt from the earlier guidance of 486 mt, though some analysts maintain that the revised estimates are conservative.

Since its debut on the bourses on 4 November, the stock has declined by about 11%, but has relatively outperformed the Bombay Stock Exchange’s BSE-500 index. This trend should continue in the long term, given CIL’s dominant presence in the space.

Graphic by Ahmed Raza Khan/Mint