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We attended the Coal India analyst meet post 1QFY12 results. The focus of the
analysts was on the PAT guidance by the company, impact from wage hike,
production from expansion projects and supply of coal from imports.
Update on production and rake availability: COAL indicated that in 1Q it
liquidated ~17.2MT of coal from the stock. FY12 is a “year of offtakes”.
Production in 1H of any fiscal is always lower (~45% of total) due to heat in 1Q
and rains in 2Q and picks up in 2H (~55%). COAL indicated that production
beyond 452MT not possible in FY12 as the mines that were removed from
CEPI have still not received clearance from MoEF and after clearance, COAL
will need to invest in the mines before they start contributing. On FY13
production, based on the working committee of the 12th Plan the growth in
production is assumed at 5% pa through the plan period. Of the 163
ongoing projects which will contribute 440MT, 227MT was contributed this
year and remaining would be as and when production started and achieves rated
capacity. On crushing capacity, COAL highlighted that the majority of the
coal stock is uncrushed as it is blasted coal. The company is looking at
reducing drilling and blasting and replacing it with surface mining and looking
at deploying mobile crushers (4 tenders awarded) to liquidate the stock. Rake
availability in 1QFY12 was 167 rakes (Apr-11 avg. RPD was 178 with few
days getting 190rakes) vs. 154rakes last year qtr. FY12 requirement is 175rpd
for 454mt and for 477mt (liquidating stock) it is 190rakes. Railway has
committed to supply any amount of rakes required. COAL indicated that while
Railway can supply rakes sometimes COAL cannot load due to seasonal
problems. COAL is trying to tackle the issue by bringing more coal to the
sliding and increase the turns by reducing average loading time per rake.
The company indicated that it is partly true that lower iron ore shipments
helps rake availability but this is just short term relief. Rake availability in
July was good at 170rpd but slipped in Aug.
Employee costs increase from 2QFY12E: The new wage agreement is due
from 1st July. While the JBCCI (Joint Bipartite Committee for Coal Industry)
has been formed, the first meeting is scheduled on 20-21 August, where the
expected wage increase by the trade unions will be known. Management did not
indicate any probable wage increase, but the last increase decided by the JBCCI
was ~24%. The company will start provisioning for the wage increase from 1st
July, which in our view would be in the ~15-20% range. The increase is
applicable on the Basic, DA and attendance bonus and based on the above
assumption would mean ~Rs35bn increase in FY12 in employee costs, in
our view.
Costs increases: Diesel impact of ~Rs2-3bn in consumables and contractual
costs. The company did indicate that the sharply lower costs seen in Social
Overheads are not sustainable and for the full year costs would revert back to
last year’s levels
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We attended the Coal India analyst meet post 1QFY12 results. The focus of the
analysts was on the PAT guidance by the company, impact from wage hike,
production from expansion projects and supply of coal from imports.
Update on production and rake availability: COAL indicated that in 1Q it
liquidated ~17.2MT of coal from the stock. FY12 is a “year of offtakes”.
Production in 1H of any fiscal is always lower (~45% of total) due to heat in 1Q
and rains in 2Q and picks up in 2H (~55%). COAL indicated that production
beyond 452MT not possible in FY12 as the mines that were removed from
CEPI have still not received clearance from MoEF and after clearance, COAL
will need to invest in the mines before they start contributing. On FY13
production, based on the working committee of the 12th Plan the growth in
production is assumed at 5% pa through the plan period. Of the 163
ongoing projects which will contribute 440MT, 227MT was contributed this
year and remaining would be as and when production started and achieves rated
capacity. On crushing capacity, COAL highlighted that the majority of the
coal stock is uncrushed as it is blasted coal. The company is looking at
reducing drilling and blasting and replacing it with surface mining and looking
at deploying mobile crushers (4 tenders awarded) to liquidate the stock. Rake
availability in 1QFY12 was 167 rakes (Apr-11 avg. RPD was 178 with few
days getting 190rakes) vs. 154rakes last year qtr. FY12 requirement is 175rpd
for 454mt and for 477mt (liquidating stock) it is 190rakes. Railway has
committed to supply any amount of rakes required. COAL indicated that while
Railway can supply rakes sometimes COAL cannot load due to seasonal
problems. COAL is trying to tackle the issue by bringing more coal to the
sliding and increase the turns by reducing average loading time per rake.
The company indicated that it is partly true that lower iron ore shipments
helps rake availability but this is just short term relief. Rake availability in
July was good at 170rpd but slipped in Aug.
Employee costs increase from 2QFY12E: The new wage agreement is due
from 1st July. While the JBCCI (Joint Bipartite Committee for Coal Industry)
has been formed, the first meeting is scheduled on 20-21 August, where the
expected wage increase by the trade unions will be known. Management did not
indicate any probable wage increase, but the last increase decided by the JBCCI
was ~24%. The company will start provisioning for the wage increase from 1st
July, which in our view would be in the ~15-20% range. The increase is
applicable on the Basic, DA and attendance bonus and based on the above
assumption would mean ~Rs35bn increase in FY12 in employee costs, in
our view.
Costs increases: Diesel impact of ~Rs2-3bn in consumables and contractual
costs. The company did indicate that the sharply lower costs seen in Social
Overheads are not sustainable and for the full year costs would revert back to
last year’s levels
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