Coal India: Coal production up by 29% in Q1FY23

The coal production in Q1FY23 was 160 mnt, up by 29% YoY. Additionally, the offtake of coal increased by 11% YoY to 178 mnt. Notably, Coal India plans to produce and offtake 700 million tonnes in FY23E. In contrast to the 1.7 million accomplished in FY22, the projected daily production rate is 1.91 million tonnes. Rainfall and Covid-19 had an impact on the productivity of FY22. By the conclusion of FY22, Coal India had liquidated 39 million tonnes of its initial 100 million tonnes of inventory.

In June, 209.8GW of the peak power demand was satisfied (an all-time high on 8th June 2022). It is true that lockdown in the base year had an impact on energy use. The demand has increased in the post-lockdown world, nevertheless.

Two factors will keep the premium in the e-auction window in place: (1) The coal inventory at non-pit-head facilities is at 25% of normative levels; and (2) International coal prices are now hovering around $324/mt, compared to $50/mt in 2020.

The reserve prices for washery grade II, III, and IV coal are Rs. 6,233/mt, Rs. 5,015/mt, and Rs. 4,784/mt, respectively. The reserve price for G-4 grade coal, however, is Rs. 4,100/mt. It should be noted that the composite realization/ton in 4QFY22 was Rs. 1660/mt, up 13% YoY. The fuel supply agreements realized remained constant at Rs. 1,475/mt, and the e-auction premium was equal to the fuel supply agreement’s prices to the extent of 65%. In the case of thermal coal, high GCV international pricing can reach $ 324/mt, as opposed to Coal India's low gross calorific value (gradation of non-coking coal) offer of $ 19/mt.

In the final week of June 2022, the salary negotiations reached round four. 20–25 percent increases will be required of management and the labor union, which is a considerable reduction from the union's previously stated 50–percent increases. The fuel supply agreement’s (FSA) costs increased in January 2018, but they have remained unchanged since then despite rising wages and diesel costs. The ministry has received the FSA rise proposal. In a normalized situation, Coal India used to generate an EBITDA margin of 22% to 24%. EBITDA margins, on the other hand, plummeted to 17 percent in 2QFY22 as a result of Covid-19 limits on online auctions and no increases in FSA. The margins recovered to 28 percent in the fourth quarter of fiscal year 22 because e-auctions were resumed and coal prices increased globally.

The main driver moving forward will continue to be pursuing FSA price increases greater than the rising trend of diesel/manpower wage renegotiations.

Coal India expects to produce 700 million tonnes in FY23, with an e-auction objective of 15 to 20 percent of total output. Rising e-auction volumes from 16 percent will help drive stronger EBITDA growth as spot coal prices continue their upward trend. By FY30E, Coal India intends to produce 1.2 billion tonnes per year. This is based on an 8 percent CAGR in output growth from FY22 to FY30E. By FY23E, Coal India hopes to replace 150 million tonnes of imported thermal coal with domestic coal, which, in terms of GCV, would amount to almost 200 million tonnes.

To reach its 1Btpa goal, Coal India projects a Capex of Rs. 800 billion over the next 6-7 years.