India's largest coal miner Coal India's results were aided by 21 per cent higher realisations on every tonne of coal, even as volumes remained flat. The company's operating profits expanded by 34 per cent year on year.
Treasury income on the company's large cash coffers chipped in with a 32 per cent contribution to net profits. The company's other income stood at Rs 1,855 crore, largely arising from the interest earned from its Rs 55,000 crore cash kitty.
The company's realisations rose by the same extent as imported MCX thermal coal spot prices, which were 22 per cent higher during the quarter. But a blowout quarter may do little to temper investor scepticism about the future.
The company recently concluded wage negotiations with its unions, settling for a 25 per cent increase in wages. The company's margins could be hit in the ongoing quarter when the higher wage costs kick in. Further, the company had to roll back its efforts at pricing coal on a gross calorific value method, which would have resulted in more graded pricing of coal and higher blended realisations.
Rollback
The rollback was due to user segments including power, steel and aluminium protesting the change. However, the company anticipates a roll-out of the new pricing mechanism in April. Despite the temporary rollback, the domestic supply shortfall in coal, the upcoming power capacities which are starved of fuel and the significantly higher costs involved in importing coal, lend Coal India pricing power. The company's various grades of coal domestically sell at rates which are anywhere between 25 to 65 per cent cheaper than international prices.
Another ongoing problem is the shortage of railway rakes needed to transport coal from mines to consumers. This could result in low volume growth in the ongoing fiscal. In the nine months ended December 2011, the company's despatches of 310 million tonnes were unchanged from 2010-11 levels. Enthused by the results, investors drove the stock price 1.4 per cent higher.