Coal India’s Q2 earnings expected to be muted amid lower e-auction and higher wage costs

Analysts anticipate a 52% year-on-year decline in e-auction revenues during the quarter.

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Coal India Ltd‘s September 2023 quarter earnings are expected to be muted, primarily due to lower e-auction prices and higher wage expenses. However, the year-on-year volume growth is expected to help counter the negative effects of a wage hike, analysts said. The firm will report its September quarter earnings on November 10.

The state run likely to report a revenue of Rs 31751.80 crore, up 6 percent year on year and 12 percent lower sequentially. Net profit likely to fall 11 percent YoY and 36 percent QoQ to Rs 6831.40 crore. EBITDA may fell 10 percent YoY and 37 percent QoQ to Rs 6611.40 crore, according to five analysts polled by Moneycontrol.

Analysts anticipate a 52% year-on-year decline in e-auction revenues during the quarter. This is expected to be partially offset by increased employee costs, higher volumes, improved FSA realization, and reduced other operating expenses.

Centrum Broking predicts Coal India’s average earnings to drop by 4.6% YoY to Rs1,700/t because the e-auction premium is down to 85% from 329% YoY. However, FSA earnings are expected to rise by 6.5% YoY to Rs1,505/t, while e-auction prices are likely to fall by 54% YoY to Rs2,785/t.

In 2QFY24, Coal India achieved a 13% YoY increase in production at 157 million tons and a 12% YoY rise in dispatches at 174 million tons, despite the monsoon season. They delivered a record-breaking performance for the sixth consecutive month in the fiscal year. In the first half of FY24, their production reached 333 million tons, marking an 11.3% YoY growth of 34 million tons. Analysts expect increased volumes, better rail availability, and rising demand from power and non-regulated sectors to boost margins, outweighing the impact of lower e-auction premiums compared to FY23.

In its recent note, Nuvama Institutional Equities said it sees a promising outlook for Coal India with volume growth, higher e-auction prices, and potential record dividends in H2FY24. Despite a 25% stock rally since September 2023, the brokerage anticipates a further 35% upside within a year, excluding expected dividends of Rs 30 in H2FY24 and Rs 25 in FY25.

As the monsoon recedes and demand for thermal power increases in H2FY24, driven by a rise in global coal prices and industrial activity, they note that coal-based power generation surged by 16.5% YoY in September. Nuvama believes Coal India Limited (CIL) is well-positioned to meet the growing coal demand.

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