Why Coal India’s Q4 results don’t fuel investors’ excitement

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Prima facie, Coal India Ltd’s March quarter results appear decent. Total consolidated operating revenues have declined by 3% year-on-year to ?26700 crore, though they are up around 13% vis-à-vis the December quarter. Post results, shares of the coal producer were trading lower in early deals on the National Stock Exchange on Tuesday, a day when the benchmark Nifty 50 index was higher.

Indeed, Coal India’s results have disappointed on some counts. Analysts from Jefferies India Pvt. Ltd said in their first cut note, “Reported Ebitda fell 5% year-on-year (in-line with Jefferies estimates); however, excluding the non-cash stripping activity-adjustment expense, cash Ebitda fell 16% year-on-year (8% below Jefferies estimates).” Ebitda is earnings before interest, tax, depreciation and amortisation; a key measure of profitability for companies. The broking firm further added, “Cash cost per tonne rose 3% year-on-year while cash Ebitda per tonne was down 17% year-on-year. Free cash flow was negative in FY21 as working capital worsened and capex rose.”

To be sure, Coal India’s reported net profit for the March quarter was flattish compared to the same period last year, partly aided by a decline in tax outgo. The company’s overall volumes were also flat year-on-year during the March quarter, although production declined by around 5%. A key bright spot has been the sequential increase in coal sold through the e-auction route. E-auction coal realisations to ?1752 per tonne from ?1466 per tonne in the December quarter. Investors should note that while the contribution of e-auction volume is relatively lower for Coal India, the impact on the profitability of the segment remains higher.

Analysts from J.P. Morgan India Pvt. Ltd said in a report on 7 June, “With thermal coal prices following Oil and LNG prices higher, we see Coal India’s E-auction realizations increasing sharply over the next few months. While E-auction accounts for 10-20% of volumes, the earnings impact is much higher and we see a consensus earnings upgrade cycle for the stock.”

Meanwhile, Coal India has announced a final dividend of ?3.5 per share, taking the total payout for financial year 2021 to ?16 per share. Currently, the Coal India stock trades at ?158 per share.

Source: Mint

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