Coal India to see higher volumes on price hike but stock erases early gains

Motilal Oswal Financial Services explained that the price hike of 8 percent, positively impacting 30 percent of the volumes, would help Coal India partially offset the cost increases, especially the wage bill.

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Shares of Coal India (CIL) opened higher on May 31 after the company raised the prices of its high-grade coal by 8 percent in the first hike since 2018.

The stock, however, quickly erased the gains and traded at Rs 241.35, down 1.23 percent at 9:20am.

“This (price hike) is expected to offset almost 50 percent of higher wage bill, following the mutual agreement between Coal India and four central trade unions under NCWA-XI. The price hike affects around 30 percent of the volumes,” said Motilal Oswal Financial Services.

CIL hopes to earn a revenue of Rs 2,703 crore in the rest of the financial year 2023-24 and all add-ons would be as per the extant practice, it said.

The domestic brokerage firm has increased its revenue estimates for CIL by 2 percent to factor in the incremental revenues due to the price hike.

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CIL is trading at an EV/EBITDA of 3.9 times FY24. Motilal Oswal Financial Services has reiterated its ‘buy’ call on the stock with a revised target price of Rs 290, and believes CIL is well placed to capitalise on the growth opportunity ahead.

Moneycontrol was first to report on May 11 that CIL is likely to increase coal prices due to its plan of increasing the wages for its non-executive staff.

On May 23, CIL said it has reached an agreement with its 2.38-lakh-strong non-executive workers over the revision of wages. Under the agreement reached, a 19 percent minimum guaranteed benefit from July 1, 2021, on emoluments (basic, VDA, SDA and attendance bonus) and a 25 percent increase in allowances have been granted.

The wage revision added an additional liability of nearly Rs 6,000 crore on the CIL. Wages of non-executive workers, who account for 94 per cent of CIL’s workforce, are revised every five years.