Published on 15/10/2019 11:14:52 AM | Source: Motilal Oswal Ltd

Buy Coal India Ltd For The Target Rs.251 - Motilal Oswal

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Disruption at Dipka mine due to flooding

FY20 production target appears stiff

Production at Dipka mine halted due to heavy floods

Coal India’s (COAL) Dipka mine (capacity: ~30mt) has stopped production since the past three days due to heavy flooding post the abrupt change in the course of Lilagar river amid heavy rains. Our interactions with COAL indicate that necessary pumps for de-logging have been sent to the site, but the exact timeline on the commencement of production there cannot be determined. Dipka was operating at ~20-25mtpa (3-4% of COAL’s FY19 production). As the same time, the company noted that its other mines within the Korba coalfields are operating. 

FY20 production target appears stiff

Shutdown for one month would imply a loss of ~2mt for COAL. This – while small (<0.5% of FY20 target production) in overall terms – would further dent COAL's plan to ramp up overall production in 2H. In fact, heavy monsoon, intermittent plant shutdowns and trade union strikes have impacted COAL’s production in recent months. For 1HFY20, COAL’s production was down 6% YoY. Against this backdrop, the company’s FY20 target production of 660mt (9% YoY growth) now appears stiff and would require 20% YoY production growth in 2H.

Coal availability could be impacted

NTPC's Sipat (2,980MW) sources coal from the Dipka mine of the Korba coalfield. Coal stock at the plant was at near zero days at end-Sep’19. Non-availability of coal poses a risk of achieving normative PAF for the full year at Sipat, leading to underrecoveries for NTPC. Average PAF at Sipat for 5MFY20 was 82%. Our analysis suggest 1% lower than normative PAF would lead to ~INR225m of FC u/r from Sipat. COAL, however, highlighted that, given the shutdown at Dipka, it would look to divert coal from its other mines to these units. We believe that the extent of impact on coal availability on NTPC will depend on the timelines of shutdown. Given that it is a pit head plant, if restarted on time, availability can be scaled up for the remainder of the year.


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