 "Coal India down 3% as Q4 net drops on higher wages; analysts remain divided")
Shares of state-owned Coal India Ltd fell 2.7 per cent to Rs 230.7 per share in the intra-day trade on Monday after the world's biggest coal miner reported a 17.7 per cent drop in its March quarter net profit on higher provision made for wage revision of employees. By comparison, the benchmark S&P BSE Sensex was up 0.7 per cent at 9:30 AM.
CIL's consolidated net profit came at Rs 5,527.62 crore in the January-March as compared with Rs 6,715 crore in the same period a year back, according to the company's filing with stock exchanges. The decline in profit in the fourth quarter of 2022-23 (April 2022 to March 2023) was despite higher coal production and dispatches to users.
The company said salaries for non-executives are due for revision from July 1, 2021 and pending finalisation of a wage agreement with unions, a provision of Rs 5,870.16 crore has been made in the quarter. This is compared with Rs 475.28 crore provision in January-March 2022. For the full 2022-23 fiscal, Coal India made a provision of Rs 8,152.75 crore as against Rs 1,080.97 crore provided in the previous 2021-22 financial year.
Workers are seeking a 47 per cent increase in wages while Coal India has offered a 3 per cent raise.
Its salary bill was Rs 49,409 crore in the 12 months ended March, about 22 per cent higher from the previous year. The company, which is facing higher production costs, spent more than a third of its revenue on salaries.
“Revenue growth was aided by a combination of volume growth (up 3.7 per cent YoY and 6.3 per cent QoQ) and an improvement in blended realizations to Rs 1,882/ton (up 14.8 per cent YoY and 2 per cent QoQ). Profitability was impacted by wage provisions of Rs 5,870 crore in Q4FY23 (Rs 8,150 crore for FY23). A low provision for overburden removal led to earnings beat at the Ebitda level and needs clarity, as typically Q4 results in high overburden removal (and consequently higher provision),” said analysts at Kotak Institutional Equities.
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They have cut their earnings for FY2024E and FY2025E by 25 per cent and 7 per cent, respectively, primarily as they moderate the pace of the decline in e-auction realizations, in line with the current trend.
“We now factor in e-auction realizations of Rs 2,905/ton in FY2024E and Rs 2,336/ton in FY2025E. We maintain a REDUCE rating on the stock with a revised fair value of Rs 240/share,” the brokerage said.
Motilal Oswal Financial Services, too, has reduced its adjusted EBITDA/APAT estimates for FY24 by 9.2 per cent/9.9 per cent to factor in higher employee cost provisions.
However, it maintains ‘buy’ rating with an unchanged target price of Rs 285 as it believes fossil fuels cannot be ignored, at least in the near term.
“Underinvestment by developed economies in the last decade has proven expensive, with no alternate sources of Russian NG in sight other than coal. Renewables remain unreliable due to challenges related to availability, costs, storage or safety. The dependence on coal is therefore likely to increase in the near term,” it said.