Beating the slowdown: CIL focuses on volume growth, pithead stocks concern remains

Business Standard takes a look at Coal India which saw a rise in volumes, revenue growth

Quick and decisive decisions is what helped Coal India Ltd (CIL)'s post a healthy volume and revenue growth, steering through a year when the industry faced a new crisis, of oversupply, instead of the usual situation of low supply.

While Coal India started 2015-16 on a flush note, achieving 41.52 million tonnes (mt) of production and 43.55 mt of offtake on the very first month (April), the company was under constant vigil from the Union minister, Piyush Goyal, and the coal secretary, Anil Swarup, to step up production to meet the 550 mt production and offtake target for the entire year.

 

Things initially went smooth. Production rose to 121.33 mt in the first quarter, 99 per cent of the target. However, signs of lower demand had started reflecting on performance. Against the offtake target of 135.35 mt, the company was able to complete 96 per cent of its commitment.

Then, faced with nearly 30 mt of coal stocks, its offtake situation fared better in the monsoon months. It sold out 98 per cent of the 124.37 mt target during July-September. Production, usual in the monsoon season suffered by four per cent.

However, all this while, a crisis in the power sector was in the making, culminating September onwards. Faced with oversupply of coal, stocks in its warehouses and poor demand from the cash-strapped power distribution companies, demand of the black mineral from the power sector - which is Coal India's primary consumer - started falling.

"Apart from the low demand from the power sector, we were also faced with a situation whereby we had over 40 mt of stocks. Nevertheless, with the guidelines and directives from the ministry, we have been able to steer through the situation," a senior Coal India official recalled.

But, having secured its fuel supply agreements with power producers, the company had further pushed its sales to step up the gas. During October-December, the company dug out 143.91 mt, to sell 137.9 mt. It fell short of both production and sales targets by three and two per cent, respectively. Stocks had been kept stable. At the beginning of April last year, these stocks stood at nearly 53.5 mt, which the miner successfully brought down to nearly 40 mt in December-end.

However, with tepid demand from the power sector, the stocks situation worsened during the last quarter. Prompting the coal and power minister, Goyal, to resort to e-auctioning of 14 mt to clear stocks. Through this route, around 86 per cent of the coal put up for sale was cleared.

Nevertheless, as production scaled up again in the face of poor demand from power companies, the stocks situation is back to square one. "Production cannot be increased if the stocks are not cleared. After all, where are we going to store the coal which will be mined out?" the official wondered.

The year 2015-16 will also be remembered by its officials as one when Coal India had surpassed 500 mt of production, to end 2015-16 at 536.51 mt.

Despite the stocks problem and low demand, production was kept ticking for a simple reason - the ministerial advice to meet the entire power needs of India through indigenous coal, to reduce the dependency on imports.

Also, with the UDAY scheme helping power distribution companies clear their dues to generators, who in turn paid back their dues to Coal India, the financial situation was much greener. During April-December, revenue was Rs 56,607 crore as against Rs 52,781 crore in the corresponding period of FY15, or a growth of seven per cent. Profits improved 5.6 per cent to touch a net profit of Rs 10,026 crore in the nine months ended December 2015. Senior officials say it will be similar in the March quarter.

This year, with a production target of nearly 600 mt, the first priority remains clearing the pithead stocks.