NEW DELHI: The world’s largest coal producer, Coal India Ltd, might have negotiated a whopping 20 per cent wage hike for its workers, but as far as profitability and revenue generation are concerned, it is sitting pretty. Experts and analysts Express spoke said that the firm’s revenues and margins are likely to get a two-fold boost, more than mitigating the additional expenses from the wage hike.
The first factor set to help the firm beef up margins is the recently introduced evacuation facility charges of Rs 50 per tonne through its rapid loading arrangement. The company itself estimates this additional income to generate additional revenue of Rs 800 crore in 2017-18 and Rs 2,500 crore in 2018-19.
“This additional charge is a quasi-price hike,” said JM Financial analysts Subhadip Mitra and Koundinya Nimmagadda. “This will directly add to Ebitda given no additional costs expected. Hence this partially offsets wage cost provisioning impact (for union labourers) of Rs 5,500-5,600 crore already factored in estimates. Another round of wage hike for executives is expected in forthcoming quarters with expected annual impact of Rs 800 crore, but clarity is awaited as a large portion of this may have already been provisioned,” the two observed in a note.
The second factor set to boost revenue and make up for the Rs 5,600 crore of additional costs due to the wage hike is the increased proceeds from e-auctions during the April-November period. Sources tell Express that the proceeds from e-auctions are set to be more than 20 per cent higher year-on-year — potentially crossing Rs 12,000 crore. The global tightening of supply due to steadily increasing demand from China is also expected to boost margins.
“The firm should hit around 70 -72 million tonnes of coal sold during the first nine months of this financial year, and is targeting crossing the 100 million tonnes mark by the end of March,” said a source. In contrast, during the previous financial year, it had only sold 64.7 million tonnes during the April-December period. Realisations have increased, with current rates standing at around Rs 1,600 per tonne against Rs 1,500 last year.
Experts state that with Chinese demand showing no signs of slowing down, these rates are expected to rule through the winter months, with some even expecting a further tightening of supply from Indonesia. “If that holds, Coal India is looking at maintaining a very comfortable Ebitda margin through the year, mitigating any additional costs from the wage hikes, including those to be announced for executives,” said an analyst.
Beefing up margins
The first factor to help beef up margins is the recently introdu-ced evacuation facility charges of H50 per tonne through its rapid loading arrangement. The second factor is the increased proceeds from e-auctions during the April-November period. The global tightening of supply due to steadily increasing demand from China is also expected to boost margins