Coal India Ltd today reported an approximately 5 cent drop in net profit to Rs 4,013 crore in the January-March 2012 quarter compared with the same period in 2011.
The drop was attributed to Rs 3,447 crore of additional provisioning during the period on account of wage revision. Effected from July 1, the wage pact was finalised in the last quarter.
For the entire 2011-12, CIL posted 36 per cent rise in net to Rs 14,788 crore as against the previous fiscal. With 0.50 paise final dividend, the total dividend for the year is pegged at Rs 10 per share of face value of Rs 10 each.
Wage costs
Announcing the results, company chairman Mr Narsing Rao told newspersons that the annual impact of the 24 per cent wage revision was estimated to be Rs 6,000 crore a year for next five years. This includes Rs 4500 crore annual rise in wage cost and another Rs 1,500 core annual requirement on other employee-related expenses.
Price increase
To put it straight CIL is targeting a production growth of 34 million tonnes in 2012-13. A back-of-the-envelope envelope calculation shows, that at the current average realisation of Rs 1,200 a tonne, the additional production will boost revenues by approximately Rs 4,000 crore, or Rs 2,000 crore short of recovering the wage cost rise.
Put another way, the company's profits will take a hit in this fiscal without a price increase. The impact will be even greater if CIL squeezes e-auction offerings or the interest rates ease. E-auction and interest income on its huge Rs 54,000-crore cash reserve brought home over Rs 11,300 crore last fiscal.
The CIL chairman, however, denied any plan to escalate prices to recover the cost-push. “We will maintain profit growth through cost reduction and production growth,” he said. On import requirements, he said the company was yet to consider the option.