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Higher volumes and e-auction premium to drive profitability

Robust domestic demand, enhanced vision of 1bt production, and improved e-auction premium are all set to drive a strong near-term performance.

? COAL growth roadmap is in synergy with the government’s commitment to bring about a transformative change in the power sector by providing 24x7 power supply to all homes sets the stage for COAL to achieve strong coal production over the next few years.

? COAL’s long-term demand commitment from numerous power plant companies for FSA provides the company with a better business visibility.

? Though the e-auction premiums have cooled off from their highs, it was compensated by higher volumes in e-auction. We expect COAL to register a better QoQ performance in 4Q with higher volumes on e-auction and almost similar levels of premium.

? COAL trades at EV/EBITDA of 3.6x FY24E. We reiterate our Buy rating on the stock with a target price of INR275 (5x EV/EBITDA). We believe COAL is well placed to capitalize on the growth opportunity ahead.

National Coal Wage Agreement – XI

* COAL follows National Coal Wage Agreement (NCWA) for payment of salaries and wages to its non-executive employees. As on FY22, COAL had 232k non-executive employees on its payroll (consisting 93.7% of its total workforce) with an average monthly salary of INR118k.

* Recently, COAL and four central trade unions reached a mutual agreement of 19% Minimum Guaranteed Benefits (MGB) w.e.f. July ’21 on emoluments (i.e., basic pay, VDA, SDA and attendance bonus). The current proposed wage hike was not only lower than the previous NCWA wage hikes, but also lower than originally anticipated. The periodicity of NCWA is for five years.

* Almost 50% of the workforce is over 50 years and are due for retirement in the next few years and the younger workforce replacing the outgoing employees will be commanding lower annual packages.

* COAL over the last two to three years has gradually reduced its hiring in the above 50 age group (zero hiring in executive role above 50 years in FY22) and is focusing on hiring and retaining younger generations with fresh talents. This will help COAL bring down the wage bill considerably in the next few years.

* In the near term, the wage hike is expected to increase the wage bill by INR58-60b p.a. However, in our current estimates, we have already accounted for a 15% wage hike and considering high wage employees of over 50 years retiring over the next two to three years, FY24 and FY25 estimates are kept unchanged.

* The last FSA price revision was taken in 2018 and COAL will eventually increase the FSA prices to pass on the higher wage bill, especially for a few subsidiaries, where the manpower cost is high.

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