State-owned coal major Coal India may face severe pressure on its profitability in the coming quarters with the company left with a mere 10.5 million tonnes of coal sold through the lucrative e-auction route in the balance period of current fiscal.

Already Coal India’s e-auction coal sale is expected to fall to less than half in fiscal year 2014-15 from a level of 58 million tonne (mt) last year to just about 25 mt. With 15.6 million tonnes having been auctioned in the first quarter of the current year, Coal India has little leeway to good financial on the back of higher earnings from sale of coal under the auction route.

“The decision to cut e-auction coal is very bad for Coal India. It could impact its profitability by 8-10% or roughly around Rs 1,600-1800 crore in current fiscal. The immediate impact could be seen in its second quarter results as e-auction coal in July-August period has dropped top just about 2mt,” said Mohit Kumar, an analyst tracking the sector for IDFC.

While the EBIDTA for coal sold at regulated prices is about Rs 200 per tonne, same rises to around Rs 1,400 per tonne for e-auction coal. “This gap is substantial,” Kumar said.

Coal and power minister Piyush Goyal has asked Coal India to reduce quantity of e-auction coal so that more fuel is available to power producers and those who have signed fuel supply agreement with the coal major. There is acute shortage of coal in the power sector, with mire than half of about 100 thermal stations having coal stocks of less than six days.

The decision (to reduce CIL’s e-auction) is expected to blow a big hole in the earnings of country’s largest coal producer with loss of earnings to the tune of Rs 2000 crore expected in 2014-15 alone. Depending on the decisions taken in subsequent years the earnings could see a further fall. Coal India?s financials are under stress with the company witnessing a drop in profit during last fiscal, the first such fall since the global financial crisis of 2008-09.

The move is also expected to impact Modi government?s disinvestment programme as a 10% divestment of government equity in the company is expected to fetch close to Rs 24,000 crore or more than one third of Rs 63,425 crore pegged from disinvestment proceeds in this years budget. With expectation of falling profitability, the company?s valuations can take hit impacting the share sale.

The company?s shares were trading 2% lower on Bombay Stock Exchange around noon at Rs 337.30. The company’s scrip closed at Rs 344.20 on Tuesday. Coal India’s share has been hovering between a low of Rs 236.03 and high of Rs 423.85 for past 52 weeks.

Coal India has reported a 8.09% jump in the consolidated net profit at Rs 4,033 crore for the first quarter period of FY 15 ended June 30.

Coal India sold close to 58 million tonnes of coal, or 12.5 per cent of its total production of 462 million tonnes, through spot e-auctions in 2013-14. This helped the company earn revenues to the tune of about Rs 13,000 crore, which is Rs 4000 crore more if the coal were to be sold at notified prices. If e-auction of coal this year goes down by 30 million tonne, CIL’s loss of revenue would be around Rs 2000 crore.

The average price of coal being sold by Coal India at notified prices is currently at Rs 1600 per tonne. While average realisation of e-auction in 2013-14 remained at 2,200 per tonne. The price of e-auction coal last year actually fell from a level of Rs 2600 per tonne in the previous year.

Coal India is expected to produce 507 mt of coal in 2014-15. Close to 430 mt of this will be provided for the power sector. For prior coal commitment, Coal India needs about 290 mt of coal. The FSA with 78,000 MW of capacity coming on stream upto March 2015 will need additional 180 mt of coal, while unlinked projects may need a further 50 mt. This puts total need for the power sector at 520 mt in current year.

India’s monolithic coal producer CIL, which is allowed to sell roughly 10% of its produce through e-auction has found this route highly lucrative with roughly 20% of its revenue coming from this segment. The contribution of spot sales or e-auction to Coal India’s overall revenues has seen a sharp rise from 11.9% in 2007-08 to 17.5% in 2010-11. Since then, due to a fall in coal prices globally, its contribution to Coal India’s total revenue has fallen, but it still stands at the double-digit mark.