Coal news and updates

Coal India production improves, but second half of the year is crucial

At Coal India Ltd (CIL), the thrust is on improving production. The government’s efforts in expediting clearances are showing results. CIL’s production in May increased by about 13% compared with May last year. Production in April had increased by 10.7%. That’s a great improvement from the 7% production growth in the last financial year.
The key to continued improvement in operations, however, will be the performance in the second half of this year, as the production base increases materially, says JM Financial Institutional Securities Ltd in note on Thursday. “1HFY15 witnessed production growth of 5% while 2HFY15 witnessed sharp uptick on production with 8.2%,” says JM Financial.
Further, while the production improvement is encouraging, offtake (or sales volume) growth is slower at 7.4% for April and May. Offtake has lagged targets on account of evacuation problems. The progress of three important railway lines—Chhattisgarh, Jharkhand and Odisha—will be an important measure to track as far as evacuation is concerned in the longer term. Nonetheless, improving production has kept CIL shares buoyant this year, with the stock increasing by 7%, outperforming the Sensex that has declined by 4%.
The company’s March quarter financial performance, though, has been rather disappointing. Reported consolidated net profit last quarter declined by 4.4% year-on-year to Rs.4,238 crore, missing Street estimates. A higher tax rate is partly to blame. That apart, higher operating expenses such as contractual expenses and employee costs also weighed on profits. Revenue growth of 4% to Rs.20,774 crore was broadly in line with expectations. The increase in revenue for the quarter was a function of better volumes given that average price realisations increased only marginally compared to last year.
It’s encouraging that e-auction volumes were sequentially better and the outlook is good considering the government has removed the cap on e-auction volumes. But investors need to be watchful. “Supply to power sector will be key monitorable for us to envisage any government action on e-auction segment,” said JM Financial in a post-results note, adding that any decline in growth to the sector could result in government action by imposing cap on e-auction.
The CIL stock trades at 14 times estimated earnings for the current financial year, suggesting little upside in the near term. However, any positive surprises on production and volumes should help.

source: http://www.livemint.com