Coal India Ltd (CIL) reported an over 4 per cent decline in net profit to ₹4,239 crore in the January-March quarter against the same period last year. Lower profits came on nearly 4 per cent rise in turnover, owing to higher production.

For the entire 2014-15, profits are down by over 9 per cent to around ₹13,727 crore. This is despite a record 32 million tonnes (7 per cent) production growth during the year.

While CIL chairman Sutirtha Bhattacharya was not available for comments, the margin squeeze is evidently a result of the government clampdown on profitable open market (e-auction) sales and diversion of the fuel to the power sector that pays the lowest price for coal (when compared to steel, cement and others).

Though the restrictions on e-auction sales were withdrawn in November, CIL’s effort to shore up revenues by offering more coal to open market coincided with a meltdown in global coal prices.

With imports getting cheaper, the net realisation from e-auction remained lower than expected in the January-March quarter. For the full year, the opportunity loss is estimated at nearly ₹2,000 crore.

At least two large mining subsidiaries, Bilaspur-based South Eastern Coalfields and Sambalpur-based Mahanadi Coalfields, which contributed most of the CIL’s annual production growth, bore the maximum brunt of this change in change in policy environment, last year.

Costs are shooting up A close analysis of the balance-sheet will reveal that the company suffered nearly 7.7 per cent cost push last year against a 4.9 per cent rise net income from operations.

Though the cost push was relatively slower in the fourth quarter of the last fiscal, the recent firming up of diesel prices should impact the company’s performance for April-June 2015.

A thumb rule calculation suggests every rupee rise in diesel price leaves ₹120 crore impact on CIL’s annual bottom line. Oil marketing companies have increased diesel prices by a whopping ₹5.08 a litre this month.

With realisations from open market sales expected to remain low due to softness in global coal prices, CIL is left with little option but escalating prices for fuel to shore up its earnings.

Price rise is most imminent for supplies to the power sector that is consuming increasingly higher share of the country’s production.

However, in the absence of independent directors on board, it should be difficult for the company to take any such decision.

In September last year, the Narendra Modi government showed doors to all Independent directors in CIL (and most other PSUs), who constitute 50 per cent of the board strength. The positions are yet to be filled.

Coal and power minister Piyush Goyal is unperturbed about the miner’s shrinking profits. Asked about the falling margin, Goyal recently advised investors to take a “long term” view on the company’s potential.

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