Coal India Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Volume-led profit beat, not price: Higher production and offtake lowered per-tonne costs, while elevated international coal prices lifted e-auction realizations, driving profitability despite input cost inflation.
• Production target affirmed, 100-crore-tonne ambition slips: Management is "quite sure" of hitting 70 crore tonnes in FY23, but the 100-crore-tonne goal has moved from FY24 to FY25, and even FY25 is seen as unrealistic; 90+ crore tonnes is the new FY25 expectation.
• Price hike is a political non-starter: The Chairman has tried for two years to raise FSA prices and failed; in the current inflationary environment and given strong profits, no government will permit a substantial fuel price increase in the short term.
• E-auction volumes set to rebound: E-auction volumes were low in Q1 (~2 crore tonnes) as power demand absorbed supply, but management expects volumes to increase from October–December as power demand seasonally declines and power house stocks provide leverage.
• What to watch next quarter: Whether e-auction volumes and realizations hold up as international coal prices cool, progress on wage negotiations and provisioning, and the pace of SECL's Dipka mine resolution.

Production & Volume Outlook

• FY23 target on track: Production and offtake both increased in Q1, and management is "quite sure" of achieving the 70-crore-tonne target this year.
• 100-crore-tonne timeline slips again: Originally targeted for FY24, the government has shifted the goal to FY25. Management believes even FY25 "may not be very realistic" and expects to reach "something higher than 90 crore tonnes" by FY25, with 100 crore tonnes achievable the year after if demand supports it.
• MDO pipeline building: Contracts for ~10 crore tonnes have been awarded (Siarmal at 5 crore tonnes, plus Chandragupta, Kotre Basantpur, and one more in MCL); these are expected to produce coal by FY24, definitely by FY25. Two major underground MDO mines (Sanmitra and Kalbhadra) are being tendered and will add ~13–14 crore tonnes roughly two years after award.
• SECL drag: Three major mines (Kusmunda, Gevra, Dipka) faced problems; Kusmunda and Gevra are resolved, but Dipka still has unresolved village-related issues.
• April–May production dip is structural, not alarming: The March rush to hit year-end targets cannot be sustained into April–May, when mines require housekeeping and high temperatures (40–50°C) make operations difficult and potentially counterproductive.
• Evacuation capacity adequate: No problem evacuating 70 crore tonnes; incremental improvements (Champa–Bilaspur fourth line this year, automatic signaling, Angul-Balram line by mid-October) are sufficient for the next two to three years.

Agrawal: "We need to create a situation where the capacity to produce in the country is slightly higher than the consumption requirement of the country so that we can avoid the import of the coal, at least lower quality of the coal."

Pricing & Realization

• E-auction realizations surged on international coal prices: Higher international prices drove e-auction premiums, even though volumes were low (~2 crore tonnes) compared to last year.
• FSA realization rose 3.5% YoY despite non-power dispatches falling ~21% YoY, driven by grade realization and a coal mix shift as customers now purchase costlier coal from BCCL and ECL that they previously avoided.
• Price hike blocked by politics and profits: The Chairman has been trying for two years to increase FSA prices but has not been successful. In the current inflationary environment and given strong profits, "no government will permit" a substantial fuel price increase in the short term. Discussions continue to at least compensate for wage, diesel, and explosive cost increases.
• E-auction volume trajectory: Volumes should increase from October–December as power demand and coal requirements for the power sector decline; power house stocks of ~2 crore tonnes provide leverage to supply the non-power sector. Stocks may dip near-term but are unlikely to go down after 20th September, though this depends on monsoon and temperature.
• E-auction vs. power demand trade-off: If power demand increases substantially, the ability to do e-auction reduces, creating a direct tension between premium realization and volume.

Agrawal: "I've been trying for the last two years to increase the price. But because of the different situations, I have not been successful. And after getting such a good profit, nobody will permit me, at least in the short duration, to increase the price substantially."

Costs & Margins

• Cost per tonne reduced significantly because of increased production, despite slight increases in diesel, petrol, and explosives prices versus last Q1.
• Contractual expenses stable: Per-tonne contractual cost is not expected to be higher in Q2 versus Q1 because diesel and explosive prices have not increased and no wage increase has occurred.
• Wage provisioning to ramp: Only ₹100 crores provisioned so far; management will increase provisioning from Q2 or Q3 onwards. The Chairman declined to indicate the possible quantum, stating negotiations are ongoing and any indication would impact the negotiation.
• Wage hike offset uncertain: Management expects to be able to offset wage hikes with a price increase but finds it difficult to commit; efforts are focused on getting stakeholders to agree to compensate for input cost increases.
• Receivables rose on seasonal supply push: Receivables increased in Q1 because supply was very high during April–June and the company relaxed collections to ensure adequate stocks for the rainy season and avoid power cuts; SCBs and gencos were under tremendous pressure. Collections will be controlled from October onwards and were already controlled in August.

Agrawal: "We are not making windfall profits per say, and whatever profit we are making is just because we have increased the efficiency of production, because we know that we have got a very huge production leverage."

Coking Coal & Washery Strategy

• Coking coal self-sufficiency is a distant goal: With present technology, maximum Indian coal usage is 25–30% with stem charging technology and only 10–15% with conventional mixing. Management stated becoming self-sufficient in coking coal "is slightly difficult task" in the foreseeable future.
• Washed coking coal washeries progressing slowly: Madhuband and Patherdih washeries have come into production; Bhojudih has also come but faces coal supply problems. Land leasing issues for coking coal washeries have been resolved, and CCL is going to award a contract/tender.
• Washed coking coal volume is not likely to reach 2–2.5 crore tonnes over the next two to four years.
• Non-coking coal washeries deprioritized: Coal India is not investing much in non-coking coal washeries because there is no purchaser willing to pay for washed coal, and the government removed the restriction on carrying coal with >34% ash beyond 500 km. One washery already under construction should come into production next year.
• Policy intervention under consideration: Allowing steel plants to take coal and wash it themselves is being explored.

Agrawal: "We must understand that becoming self-sufficient in coking coal with the present technology is slightly difficult task."

Diversification & Capex

• Coal gasification: Coal India is tying up with other PSUs to ensure off-take before putting projects to tender. Off-take tie-ups are expected in the next couple of months, after which tenders can be issued; something may materialize within the next seven to eight months.
• Solar ambition: The company targets becoming energy-neutral in the next two to three years and is working to establish solar power plants for state discoms, talking to different state governments.
• Aluminum project "still on the drawing board."
• Investment discipline: Project IRR threshold is at least 12%; solar for self-consumption delivers "very high" IRRs; alumina would proceed only if IRR is much more than 12%.
• HURL and TFL updates: HURL's Gorakhpur plant has started; the other two plants are likely to start very soon. Talcher Fertilizers is delayed by about 18 months due to COVID and visa issuance issues.
• Coal demand conviction: Management believes coal demand in tonnage terms will keep increasing for the next 15–20 years, even if its percentage in the energy basket reduces.

Agrawal: "My understanding is that and it has always been, that for the next 15 to 20 years coal requirements will definitely will be there. The percentage in the total energy basket may reduce, but coal demand in tonnage terms will keep on increasing."

Infrastructure & Evacuation

• Angul-Balram rail link: Expected completion by mid-October, delayed from the earlier July target. All land-related problems are solved; one major bridge needs to be constructed, and approach earth filling remains, affected by the monsoon.
• Tori-Shivpuri third line: Expected completion by the middle of next year; Shivpur-Kathautiya by 2024.
• Jharsuguda-Barpali-Sardega line: Doubling expected to complete next year; the Barpali component will take another two years; over bridge/flyover by the middle of 2024.
• FMC projects: 35 projects will be completed by March 2024, adding wagon-loading capacity.
• No evacuation bottleneck expected in the next two to three years given the pipeline of rail links, automatic signaling, and FMC projects.

Guidance & Commitments

Key Metrics