COALINDIANSEQ1 FY23September 08, 2022

Coal India Limited

9,290words

105turns

18analyst exchanges

2executives

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Management on call

Pramod Agrawal

CHAIRMAN, MD &

Rahul Modi

ICICI SECURITIES.

Key numbers — 40 extracted

700 million

r profitability. The company is quite sure that this year, we will be achieving the target of our 700 million tonnes. And for this, we are working very hard. There are certain problems in 1 or 2 companies, b

900 crore

r. Pramod Agrawal: Okay. First is wage provisioning. Last year, we have provided something like 900 crores last year we had provided for the wage increase. This year again we are providing Rs.150 crores

Rs.150 crore

like 900 crores last year we had provided for the wage increase. This year again we are providing Rs.150 crores per month, so 1,800 crores. Now we have provided 100 crores, and we will increase it in coming

1,800 crore

had provided for the wage increase. This year again we are providing Rs.150 crores per month, so 1,800 crores. Now we have provided 100 crores, and we will increase it in coming quarters, maybe in third qua

100 crore

. This year again we are providing Rs.150 crores per month, so 1,800 crores. Now we have provided 100 crores, and we will increase it in coming quarters, maybe in third quarter onward we’ll increase. It wi

rs,

month, so 1,800 crores. Now we have provided 100 crores, and we will increase it in coming quarters, maybe in third quarter onward we’ll increase. It will be very difficult for me to say what will be

Rs.4,340

on Coal India’s bottom line as well. E-auction price last year in the first quarter was around Rs.4,340 and that increased the substance sale, quantity was 20 million tonnes. I don’t have a figure right

20 million

year in the first quarter was around Rs.4,340 and that increased the substance sale, quantity was 20 million tonnes. I don’t have a figure right now, what is the quantity we have auctioned in Q2, but I pres

25 million

t now, what is the quantity we have auctioned in Q2, but I presume that this trend of about 20 to 25 million tonnes will continue throughout the year and we will end the year with about 80 million to 90 mil

80 million

out 20 to 25 million tonnes will continue throughout the year and we will end the year with about 80 million to 90 million tonnes of e- auction coal. But this depends how the demand for the power comes up. I

90 million

illion tonnes will continue throughout the year and we will end the year with about 80 million to 90 million tonnes of e- auction coal. But this depends how the demand for the power comes up. If the demand o

300%

ent. Price as of now is still very high, and in certain cases, we are getting about 4,500 or even 300% of the premium. So, about this range will be maintained if it does not increase further. But at l

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Guidance — 20 items

Pramod Agrawal

opening

“The company is quite sure that this year, we will be achieving the target of our 700 million tonnes.”

Pramod Agrawal

opening

“And I’m quite hopeful that this year will be an outstanding year for Coal India, both from a production point of view, secondly from meeting the need and because the production is there, we will be meeting the need of the nation and all of this will contribute to increase of profits of the company.”

Amit Dixit

“So, what kind of number can we expect in terms of realization in this quarter and going ahead so far in September, what kind of price you have seen, has it fallen from that level and what kind of volume can we see in the e-auction for the whole year.”

Pramod Agrawal

“It will be very difficult for me to say what will be the impact of the wage negotiation but, because the negotiations are still on and we have not come to any agreement, but the impact, we will try to respect this.”

Pramod Agrawal

“So, there will be increase, there will be some impact, but the impact is not going to be very phenomenal.”

Pramod Agrawal

“It will be something which can be managed and with the price increase due, it will not have any impact on Coal India’s bottom line as well.”

Pramod Agrawal

“So, about this range will be maintained if it does not increase further.”

Pramod Agrawal

“But at least this range will be maintained for e-auction price as well.”

Pramod Agrawal

“It is will be very wrong for me to give any indication to what will be the wage impact because the negotiations are on.”

Pramod Agrawal

“And next year, it should get completed, if I’m correct.”

Risks & concerns — 15 flagged

It will be very difficult for me to say what will be the impact of the wage negotiation but, because the negotiations are still on and we have not come to any agreement, but the impact, we will try to respect this.

— Pramod Agrawal

So, to me, that doesn’t seem likely at all, but it will be difficult for me to see what will happen in future.

— Pramod Agrawal

I’m not saying that if that increases then the receivables should increase but, there are periods when the SCB and gencos are under tremendous pressure and we are also pressured to keep maintaining the supply lines properly.

— Pramod Agrawal

But it will be very difficult for me to answer this question directly, if you want, we can do some research and then give you.

— Pramod Agrawal

We must understand that becoming self-sufficient in coking coal with the present technology is slightly difficult task.

— Pramod Agrawal

Beyond that going, beyond that it is really difficult.

— Pramod Agrawal

So, in foreseeable future, becoming self-reliant in coking coal will be difficult.

— Pramod Agrawal

If that comes, then perhaps it will help the country to increase the usable coal in a bigger way, but giving any commitment or giving any this will be difficult for me.

— Pramod Agrawal

Coal compensation tax is, how long will it continue it is difficult for me to say.

— Pramod Agrawal

Now, they have indicated that it is 2026, so 2026 there is not much of pressure because that is the situation.

— Pramod Agrawal

Unless we have got our rationale, there’s long-term tie-up with somebody, it will be difficult for us to sell the product in long term.

— Pramod Agrawal

I request the questionnaire, people asking question they should ask two, three questions whatever in one go and let me answer that and if they have queries again then they can come back in the queue or write us we will give the reply because there may be many people and going beyond sometime will be difficult for me.

— Pramod Agrawal

I’m quite hopeful that thereafter, there will be not so much of the pressure to supply to the power industry.

— Pramod Agrawal

We have tendered lot many times, we are going for coal gasification on new model because we don’t want to take technology risk.

— Pramod Agrawal

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Q&A — 18 exchanges

I have two questions, the first one relates to, essentially, the wage provisioning. We have not seen anything in the P&L profile and this is contrary to earlier times whenever wage provision was there, it was being shown from Q3 of that particular year. But so far, we have not seen anything. So, could you please throw some light on the possible quantum of increase that you would provide for it? That is my first question.

Pramod Agrawal

Okay. Will you ask the second question as well, then I will reply both the questions simultaneously. Yes, sure. The second question is essentially on e-auction volume and pricing. What we have seen that the blended e-auction prices in Q1 were like 4,400 almost, but the bookings in the last 3 months have been upwards of 8,500. So, what kind of number can we expect in terms of realization in this quarter and going ahead so far in September, what kind of price you have seen, has it fallen from that level and what kind of volume can we see in the e-auction for the whole year. So, these are the two

Sir, my first question was with respect to the status of the railway line of the railway projects, the Tori-Shivpuri doubling of the line and Jharsuguda–Sardega doubling line. So, what would be the current status of the expansion, sir?

Pramod Agrawal

Tori-Shivpuri line, as you know the second line was completed and the third line was even in progress. And next year, it should get completed, if I’m correct. Yes, Shivpur–Kathautiya will get by 2024, and this line should get middle of next year, the third line will also be laid. The work is on. The second question about Jharsuguda-Barpali-Sardega, the Jharsuguda-Sardega line, the first line is already there it is functional. The second line, we have sanctioned it, and it is likely to get completed by March 23, but there are three components in that. One is Barpali and the second is there are

Sir, my first question is going back on e-auction. Now over the last few months, we have seen government policies, which have tried to tamp down on windfall profit for various companies and various sectors. In that context, sir are there any risks to the e-auction prices or volume in terms of potential policy action. Does the company see if prices remain such high then there could be restrictions in terms of what kind of e-auction sales volume has done. My second question is, there seems to be an increase in the receivables by around 3,500 crores in June versus March. So, what has driven it, w

Pramod Agrawal

Okay. You have asked three questions. First is related to windfall profit. See, we are selling 90% of our coal on SSC, etc., which is tied-up coal and there is hardly any profit on that. We are getting only 10% coal, which is e-auction and 10% to 15% on which we make all the profit. And in our case, there is hardly any windfall profit. If the windfall profit, if they try to control the price of the e-auction coal, then they will have to increase the price of this power coal. So, to me, that doesn’t seem likely at all, but it will be difficult for me to see what will happen in future. But there

I’m Soham, Asset Manager. Sir, one question I had was, if we were to compare on a kcal basis, realistic value basis, what is the discount today on e-auction versus imported coal, sir and what is the gap you see, historically how has that been, sir?

Pramod Agrawal

It is very difficult for me to compare these things, but let me try because I have not prepared, the coal that we are supplying is mainly lower quality coal, and imported coal is generally higher quality coal. Generally, the imported coal is in the GAR of 5,000 and if you say what we are supplying normally is 3,500 GAR or about 4,000 GAR. So, comparing this cost price of this, just on calorific value, will not be proper because you don’t convert the inherent calorific value directly into energy. There are certain losses, etc., and there are certain other things as well. Like in small iron plan

Sir, first question on the part of the coal compensation step. So, if you see all the captive mines, which have come under auction, they have the benefit that they don’t have to pay that Rs.400 odd coal compensation cess. So, are we making any ground to the government saying that it’s not a level playing field because all these coal mines which would be coming after five years or three years would be enjoying such a significant benefit?

Pramod Agrawal

See, if the coal is consumed by the same company and in the same state, then only the coal compensation tax will not be applicable. But many of these companies will be using this coal outside their state. Coal compensation tax is, how long will it continue it is difficult for me to say. This was till June this year, but this has been extended maybe it will get extended further. Now, they have indicated that it is 2026, so 2026 there is not much of pressure because that is the situation. Because not much of production is likely to come from these captive mines, et cetera. Not captive mines, but

Sir, my question is, how many workers on an average retire every day and what percentage of that portion is employed in underground mining?

Pramod Agrawal

Okay. See, today we have got about 240,000, 245,000 workers out of that about 1 lakh is there in underground mine and 140 or 145 is in opencast, roughly in that range. About 5% of our manpower is reducing every year. This year, again, it will reduce by about 12,000 to 13,000. So, that’s the situation. No. But that out of 5%, what percentage is from underground because their productivity is ridiculous and it is highly loss-making for us. So, out of the retiree majority are from our underground mining workers or opencast that is my question, sir. See, in underground mines, they are the older min

Okay, thank you.

Management

Sir, my question, I’ll just go quickly with them. My first question is, while the international prices are quoting, $400 plus, in our investor presentation we are realizing about 4,400 on the auction and about 1,500 on the FSA. So, why is there such a huge gap between the two. The second question is, there’s a lot of other conference calls of these power companies, the management is saying that they’ve been able to renegotiate their supply agreement and PPA agreement and they are able to get higher prices because of the increased coal cost and increased cost of production. So, why aren’t we ab

Pramod Agrawal

Now comparing to international tax, $400 plus is the price for coking coal, that is not for normal coal. As I mentioned that in Indonesia ICI3 last week was $114 only. That, too, is very high compared to our price at which we are selling. But as you know that our coal is slightly inferior rate and the consistency in our coal is low because of the occurrence. It is the geographical, geological thing that is happening. And hence, we always had slightly lower price than the international price. So, there is no anomaly on that. We cannot get the price of the coking coal. Coking coal is a completel

SECL has been an underperformer for quite some time as far as off take is concerned and ECL as well. So, are there some specific issues there, in the current month of course we saw SECL bouncing back. So, if you can throw light on SECL in particular, because it is the largest subsidiary that we have. The second question is on linkage materialization. So, a lot of companies are non-regulated sector mentioned that the linkage materialization dropped in Q1. So, is there any chance of them, of the linkage materialization improving in the quarter?

Pramod Agrawal

Coming to SECL. SECL have got some problem in their major mines. There are three major mines which produce maximum coal in that company Kusmunda, Gevra and Dipka. We have been able to solve the problem of Kusmunda and Gevra. There is some problem in Dipka, which we are trying to solve, one or two villages have been solved. But one or two villages are still pending. We are actively working on that. If you see the dispatches this month, this has improved. If you see the OB removal, this has improved. But unfortunately, for the last 15 days, it has been also raining very heavily, because of which

Three questions. The first question is on the e-auction booking, which has dipped a bit this year. So, we have seen only 20 million tonnes of booking in the past five months. Sir, where do you see this trajectory, and will it improve going forward. Second question is on the Angul-Balram rail link. So, we had mentioned in the annual report that it was supposed to be commissioned in July 22, so has that been commissioned or what’s the status of it, if not. And the third question is on the coal gasification projects that we have announced. So, what is the status and who will be our technology par

Pramod Agrawal

On the e-auction volume the first quarter was perhaps 20 million tonnes. Now, if I am remembering correctly, this is low compared to last year, but the realization is very high. E- auction volume will increase in coming months with the demand of the energy sector going down, because as the trend has been in October, November, December, the demand for power goes down, and with that, requirement of coal also goes down. I’m quite hopeful that thereafter, there will be not so much of the pressure to supply to the power industry. Secondly, I’m quite hopeful on this account because today, the power

Sir, you mentioned about the difficulty in price hike and the inflationary pressures in the profitability, but sir is it fair to assume for the wage hike when it happens, the offsetting price hike will happen, because in any case I believe it’s a small amount of price hike that you will have to take, so that component can be offset, is that fair understanding sir?

Pramod Agrawal

I think we should be able to do that, Dhruv. But then committing anything will be slightly difficult for me. But at least I am trying that everyone should agree to compensate us for wage increase, petrol, diesel increase and explosive increase that we have incurred based on this explosive, so that at least our production cost, increase in production cost, increases in the inputs of production that’s compensated. So, we are trying for that, but wage at least I think it should be doable. Sure sir, thank you. And sir, secondly, the 1Q number, is the cost base that we see on contractual expenses a

Sir, my all questions have been answered. I have only one technical question. Sir typically, we understand that H2, our production is much higher than the H1 because of H1 in large part of having a three to four months kind of monsoon. But if you look at, month-on-month, April and May production wise declined from the March substantially?

Pramod Agrawal

This year, we have tried to restrict it. But in March, everybody rushed to achieve the target. And that type of rush and pressure cannot be maintained. Our machines, we have deployed in coal production. We shift the machines also from overburdened production to achieve the targets. But overburden removal becomes essential and in April and May, all those housekeeping things are bringing the mines back to the shape, etc., are required. And then that type of pressure cannot be sustained for long. Then the third thing which is important is high temperature. See, in April this year, the temperature

I have only one clarification, sir. What is your cost of production under the new MDO contract on an average. And how does this compare with your current cost of production from the overcast mines?

Pramod Agrawal

See, in MDO contract, it will depend largely on many factors. One is what is the stripping ratio. If you compare the total excavation cost, it is slightly higher, 10% to 15% higher than the cost of total excavation from what we normally do, because here the capital investment from the MDO is expected and is required to solve many problems which otherwise the companies solve. But the coal production cost, if you see per se, it is different in different pockets like in Siarmal, it is almost comparable to what we charge, but same is the case of CCL. But in SECL, the rate we have got is slightly h

My question was related to evacuation plans and longer-term, evacuation constraints in longer- term coal production plants. What I understand that by FY26, when one million tonne is expected to come, some of these evacuation projects which are currently constrained, they will come. But in the near term, these evacuation projects may be delayed so how confident you are of achieving 700 million tonnes in FY22 or FY23 or 800 million tonnes next year. If the evacuation projects like the rail projects happening in Chhattisgarh or Odisha or Jharkhand, if they get delayed.

Pramod Agrawal

See, for FY22, 700 million tonnes, there’s no. The existing lines, with the slight improvement that railway is doing, able to take business for growth. And if you are talking about the railway lines, there should not be any problem because that much adequate arrangements have been made because, if you want to talk about the area wise, Ib Valley there are certain things which will come. Sardega as the Jharsuguda-Sardega line is operating not at the maximum capacity, the capacity is still there. In Jharkhand also, the capacity is there. In Korba line, the fourth line between Champa and Bilaspur

I just had one question, which is whenever this wage revision happens, will it in any way have, would there be any increase in the contractual expense because of that or there is no such contractual laborer, contract laborers, who are employed to whom we have to give a hike?

Rahul Modi

See, our contractual labor price is also linked to the wage. So, the HPC prices, high-power committee price, as we call it, has to be paid to the contractual laborers also. And that is the whatever minimum price fixed by the government of India and the lowest of the wage that we pay to our worker and average of these 2 that is there. So, there will be some impact on contractual things as well. But since the labor there is not so much, the impact on this our labor will be much more than this.

My question is regards to the solar, like what is the update on that. And as we know now the green energy is increasing and government is also pushing for producing more in the form of green energy, so the demand for coal will definitely go low. Currently, the demand is high because the energy consumption has also increased, but in talking about near future, they want us to reduce the consumption of coal. So, for that, how is the company looking at the alternative business?

Pramod Agrawal

Whether the coal will lose its line in 10 years. See, it will be difficult for anybody to predict, two years back there was a thinking that perhaps the coal demand will never come back, but it has bounced back this year. My understanding is that and it has always been, that for the next 15 to 20 years coal requirements will definitely will be there. The percentage in the total energy basket may reduce, but coal demand in tonnage terms will keep on increasing. And in the next three, four years that we. So, my understanding is that for the next 15 to 20 years, the demand of coal will definitely

Thank you, everyone, for coming to this con call. I’m really thankful to you for asking the questions. I think I was able to reply most of the questions, but in case there are any more issues, you may write to Mr. Viswanathan, he will be able to communicate to you the other details. Thank you very much.

Management

Speaking time

Pramod Agrawal

Moderator

Mohit Kumar

Vipul Shah

Amit Dixit

Vishal Chandak

Sanjay Parekh

Kamlesh Bagmar

Rahul Modi

Dhruv Muchhal

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Opening remarks

Rahul Modi

Thank you. Good day, everybody. On behalf of ICICI Securities, I welcome you all to the Q1 FY23 Post Results Conference Call of Coal India Limited. Today, we are pleased to host the members of the senior management of the company, led by Shri Pramod Agrawal, Chairman and Managing Director. Thank you, sir, for giving us time for this interaction. We will begin the call with remarks from Chairman, and after which we will open the lines for Q&A. I would like to hand over the floor to CMD now. Thank you, and over to you, sir.

Pramod Agrawal

Thank you, Rahul and good day to everyone present. Let me first apologize for postponing this meeting twice, first because of my sickness; and second because of some urgent work that emerged, but I’m really thankful to ICICI for organizing this meeting. I really wanted to come personally to Bombay, but somehow it is not happening because of the pressures of increasing production. There is demand for power coal has increased substantially, partly because the demand for energy has increased and partly because the imported coal-based power plants have reduced their production substantially. The generation has reduced substantially. Secondly, even the CTPs, which were importing coal and producing their own power, they have now shifted to the utilities and hence, the power consumption through utilities have increased where the Coal India has to supply power. In first quarter, we are happy to inform that we could meet the demand of the power sector and we could maintain the supply to non-pow

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