Though higher offtake comes on a low base of last year, there is optimism that the recovery in power demand and economic activities may help the company improve its performance going forward
For Coal India Ltd, better volumes in June trigger hopes of improved prospects going ahead. Provisional figures reported by the company for June indicated a 2% year-on-year improvement in production and 23% improvement in offtake.
For the June quarter, the company's production volumes grew 2.4% and offtake improved 32.7%. Though the higher offtake comes on a low base of last year, there is optimism that the recovery in power demand and economic activities may help the company improve its performance going forward
“The company’s Q1FY22 volume at 160.4mt (million tonne) is the highest ever for the first quarter and is enough to meet our FY22 estimated offtake of 614mt," said analysts at Edelweiss Securities Ltd. Besides, "pick up in power sector volume-up 38% YoY-in 2Months FY22, higher e-auction premium and reducing receivables are likely to aid cash accretion", they added.
The company supplies a larger portion of its produce under the fuel supply agreement (FSA) to the power sector. Besides, higher demand from the power sector helps improve the company’s e-auction realisations too.
Analysts are of the view that production continues to be rationalised to reduce pithead inventory. On the positive side, inventory at 60 mt fell 38% compared to March 2021, as per analyst’s data.
Rising international coal prices are also likely to support domestic demand moving forward, curbing cheap imports. Import prices for Indonesian-origin thermal coal, primarily consumed in the power sector, continued to increase 9% month on month up to end-June 2021, India Ratings and Research said in a note. This is being led by production and supply disruptions due to heavy rainfall, relaxed Chinese import quota for June 2021 and re-stocking requirements ahead of the monsoon season.
South Africa-origin thermal coal prices, primarily used in sponge iron manufacturing in the steel sector, also increased by 9-11% sequentially at the end of June 2021. This is also due to continued supply disruptions in the transportation services to the Richards Bay Coal Terminal in South Africa amid stricter lockdowns post rising infections, limited cargo availability, limited stocks on Indian ports and a sustained high Chinese demand.
All this may help curb cheap imports and boost Coal India’s volumes and realisations moving forward. The Street thereby will be watchful on the same and also on sustained volume performance during the monsoon season. The stock is up 18% from its April lows, and sustained volume performance, as well as an uptick in realisations, holds the key for earnings improvement.