Coal India’s earnings to get a boost from e-auction premium, volumes
Coal India Ltd’s (CIL) shares hit a 52-week high of Rs359 apiece in mid-November but are now hovering 7% below that level. Still, there is optimism on earnings outlook on the back of volume growth and better e-auction realisations. The coal producer has a production and sales offtake target of 780 million tonnes (mt) each for FY24.
For the first seven months of FY24, production and offtake stood at 394 mt and 422.4 mt, respectively. This means CIL would have to clock 10% and 16% growth, respectively, in the remaining months to meet its production and offtake targets for FY24. The company expects offtake to pick up in the second half of FY24, partly aided by seasonality (lack of monsoon).
In a recent investor call, the company’s management said it expects demand for coal to be strong in the coming years. CIL’s production target for FY25 is 850 mt, and 1 billion tonnes by FY26. Apart from volumes, the trend in e-auction price realisations is a crucial variable.
The company sells coal through two main routes–fuel supply agreement (FSA) and e-auction. The realisation of e-auction coal is typically higher than that of FSA, which is heavily discounted to keep electricity prices low, said Amit Dixit, an analyst at ICICI Securities. In the September quarter (Q2FY24), CIL’s e-auction realisation fell to Rs2,838 per tonne, marking it the fourth straight quarter of drop in the measure, reflecting the fall in international coal prices.
E-auction premium to FSA price fell to 84% in Q2, but has now risen to 90%. For perspective, this was 144% in Q1 and a high of 329% in Q2FY23. What has kept the optimism alive despite the drop in e-auction premiums in Q2 is CIL managing to clock a 12% year-on-year growth in Ebitda, or earnings before
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