IGI Logo

E-auction to improve further

Key takeaways from Coal India’s (CIL) Q4FY21 conference call: 1) Although demand was impacted between Mar-May’21, YTDFY21 production and offtake has been robust on account of restocking, 2) FY22 offtake target is now 660mnte, which is achievable, 3) capex will remain at ~Rs150bn each in FY22 & FY23 mainly on replacement of equipment, land acquisition and evacuation projects; FY24 onwards, capex will depend on coal demand and will be primarily for land acquisition and mine development, 4) CIL is working on reducing receivables further from Rs170bn to Rs120-130bn, 5) FY22 e-auction volume target is 130-140mnte; premiums can improve to 20-25% levels, 6) it will award 8-10 more mines through MDO route in FY22, which will help cut costs, 7) wage revision negotiations are ongoing; impact will only be 2- 3%, and 8) merging of e-auction will bring in higher transparency and efficiency as well as reduce cost. Maintain BUY.

Demand and manpower was impacted due to the second covid wave and lockdowns. Demand reduced suddenly in Mar’21 as power plants had high inventories and curbed offtake. Till Jun’21 YTD, despatches and production have been robust

Offtake target:

CIL has revised its offtake target for FY22 downwards to 660mnte, based on factors including power demand, covid-related disruptions, import substitution etc. YTDFY22, CIL has exceeded past year’s offtake by 36mnte. Thus, if CIL ends H1FY22 with 45-50mnte higher offtake volumes YoY, 660mnte will be achievable.

Reduction in manpower

in FY22E is targeted at 13,000-14,000 YoY. Had there not been any wage negotiations, reduction would have reduced wage cost by 3% YoY. Even 5-7% increase in wages may impact the wage expense only by 2-3% on FY21 expense.

Gratuity increased by Rs10bn in Q4FY21, which resulted in 14% increase in wage cost.

Price hike:

CIL is deliberating on taking a price hike and will make a decision soon.

Capex:

Negligible expenditure in diversification projects. There will be capex on 100MW GUVNL solar project, on 70:30 D:E basis, where total equity requirement will be Rs5bn in case CIL wins 100-300MW more during the year. Acquisition of land, R&R, FMC projects for evacuation of coal and railway lines and sidings will take up most capex. There had been under investment in the past several years due to which higher capex is required in order to continue normal mining operations. FY21 capex was Rs130bn (including investments in HURL and TFL, investment in rail lines and GST adjustments capitalisation of Rs7-8bn), majorly on land acquisition and machinery. FY22 capex target is Rs170bn (including Rs30-40bn investments in HURL and TFL). Capex in FY23 may be slightly higher at ~Rs200bn. The high capex is due to replacement of old equipment, evacuation projects (FMC, CHP, railway infrastructure etc.). The company has ordered most of the large machinery it requires. Beyond FY23, capex will depend on coal demand growth (based on which land will be acquired).

Receivables:

Receivables have reduced to Rs170bn. CIL has a target of reducing it to Rs120-130bn. It is trying to reduce receivables by regulating supplies to large creditors

E-auction:

124mnte was auctioned in FY21 of which only 65mnte was lifted till Mar’21. Balance will be lifted in FY22. FY22 target is 130-140mnte. Current e-auction premiums are 16-17%. It can increase to 20-25% in the next few quarters.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer