Coal India profit drops 28% in Q2

Our Bureau Kolkata | Updated on November 25, 2017 Published on November 09, 2014


Hit by expense surge, huge margin squeeze

Coal India Ltd reported a 28 per cent drop in net profit at ₹2,192 crore in the second quarter of this fiscal against the same period last year. Sequentially, the profit fell by almost half.

The decline in profit is primarily due to a huge margin squeeze on coal sales excluding the earnings from e-auction and interest income on fixed deposits. From nearly 15 per cent in the July-September quarter, the operating margin has dropped below 10 per cent.

Margins declined for two reasons. First, while production grew by a healthy 5 per cent in the rainy season – the most difficult time for the mining sector – the Government forced CIL to divert increasing quantities to power plants sacrificing the interests of other users such as steel and cement. The result is evident in a mere ₹267 crore (1.7 per cent) growth in net sales.

Second, while the realisation growth was restricted, costs grew by close to 8 per cent. Contractual expenses, a prime indicator, went up by nearly 17 per cent.

More trouble ahead

A drop in the sales margin increased CIL’s dependence on e-auction sales and interest earnings from cash deposits for net profit.

Other income (₹2,022 crore) contributed nearly 57 per cent of the pre-tax profit (₹3,554 crore) this year, up from 49 per cent in July-September 2013.

Fortunately for CIL, other income dropped by a mere ₹160 crore (7 per cent) this year despite a near complete halt on e-auction sales from September.

Though Union Coal and Power Minister Piyush Goyal asked the curb on e-auction in mid-July this year, the realisations continued till August. Also the announcement triggered hectic buying and rise in open market prices, compensating the volume loss in September.

With e-auction offerings down to one-fourth from September, CIL’s balance-sheet is likely to be hit severely this quarter.

Grim outlook in Q3

On the production side, CIL is comfortable so far. Between April and October, output has gone up by a significant seven per cent.

At the current daily production rate of 1.45 mt, October-December quarter should bring major growth in volume.

However, the margin of net profit to net sales may decline from the current 14 per cent, unless e-auction sales are revived or price of fuel supplied to the power sector is increased.

Sources say both the options are so far discouraged by the Union Government.

Published on November 09, 2014

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