Coal India’s (CIL) operating performance in August 2023 was robust, with several key highlights:
(i) Production and sales volumes have maintained their highest-ever levels for the fifth consecutive month in FY24 (ii) The revival of volume at SECL has counterbalanced the flat volumes from MCL. (iii) The typical volume dip in Q2 is considerably lower in FY24, thanks to increased rake availability (iv) Aug’23 saw a 61% y-o-y increase in volume to the non-regulated sector (NRS), which is expected to support FSA prices (v) Pithead inventory stands at a 45.3 million metric tonnes due to production ramp-up. Looking ahead, we anticipate that CIL will benefit from operating leverage as a result of higher sales volumes, serving both NRS and e-auction customers. This remains true even though the e-auction premium is expected to be lower than in FY23.
Looking ahead, we maintain our confidence in achieving our FY24E sales volume estimate of 741 million tonnes, representing a 6.5% y-o-y increase. This conviction is supported by CIL’s impressive 7.5% y-o-y growth in offtake recorded year-to-date through August 2023.
We identify enhanced rake availability and increased e-auction bookings as significant positive developments. The key highlights are: (i) Rake availability in July 2023 witnessed a 4% y-o-y improvement following two months of decline, and we anticipate that this positive trend continued into August 2023 (ii) Based on our channel checks, it was reported that 5.01 million tonnes (mt) were booked in e-auctions in July 2023, with 6.156 mt being offered. This represents a notable increase compared to the 2.66 mt booked in the same period the previous year. However, e-auction premiums over notified prices were at 58%, a decrease from the 290% recorded a year ago. Given the 20-25% surge in international coal prices in July 2023, we anticipate that subsequent e-auction bookings will be executed at higher prices. These developments bode well for the industry, indicating positive trends in rake availability and the potential for e-auction prices to align with the global coal price increase.
CIL’s earnings are sensitive to volumes, and the year-to-date performance through August 2023 indicates a promising uptick in volumes for both regulated and NRS customers. This development offers the company a dual advantage, with the potential for increased operating leverage and higher FSA prices. Also, the recent upswing in international coal prices sets a favourable backdrop for future e-auction prices. Also, the rise in volume at SECL augurs well for maintaining earnings momentum.
