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NEW DELHI : Coal India Ltd's lower-than-expected performance amid high expectations disappointed the street. The stock declined more than 4% on Monday.

The strong coal demand meant that company saw its sales volume grow 9.7% year-on-year to 147.35 million tonnes (MT). The company’s revenues at 21,292.50 crore also grew 9.3% year-on-year in line with volume growth. The realizations thereby did not improve much as per expectations. The analysts had been anticipating significant improvement in e-auction realizations looking at steep rise in the international coal prices.

The e-auction prices at 1,594 a tonne were almost flattish sequentially and comparable with 1,569 a tome in the previous quarter.

Coal India's reported net profit (ex overburden removal) also declined by 17% over Q2FY20 and 2% sequentially and were lower than analyst estimates. Analysts at JM Financial said that the reported net profit missed their estimates by 13% largely led by flattish sequential e-auction prices while international coal prices (lead indicator for e-auction) spiked by 50% in Q2.

The company management, however, has indicated that the e-auction realizations have a two-three month lead lag between allocation and delivery. Thus the benefits will be seen in the coming quarters. Analysts say that the August-September 21 e-auctions have prices at premium of 42-59% to the benchmark, or the fuel supplied under price agreements. The e-auction premiums were at 14% in Q2. While the third quarter may see some spike in e-auction realizations, however, the same may cool down slightly in the fourth quarter and onwards as the international coal prices, too, have cooled down from the peaks.

The company, meanwhile, is also looking at raising prices for coal supplied under fuel price agreements. If it happens, it will support the company's future earnings prospects and also lead to reduced concerns on expected wage hikes.

Analysts at JM Financial said that they remain long-term positive on the company, given attractive dividend yield (11% at FY21 pay-out) riding on 10-12% earnings CAGR over FY21-24. The factors that remain supportive for earnings include expected 4-5% volume growth, higher near term e-auction prices and benefit of operating leverage as volumes or sales rise while costs remain largely stable. Incremental power demand growth in FY23-24 can lead to higher than expected volume growth.

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