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What Coal India Should Do To Keep Momentum Going : Partha Bhattacharya

Former Coal India chairman and managing director Partha Bhattacharya shared his views on what the coal mining behemoth should do going forward to keep its momentum going.

Coal India, the largest coal miner in the world has gained 20 per cent year-to-date (YTD) on the bourses. In the last month alone, shares have spiked 10 per cent.

Coal India shares have surged on the back of improved production and the government doubling production target for the next five years, analysts say.

Increase consumer base: 77-78 per cent (of the production) goes to power sector and more importantly for the last 10-12 years we have not increased our exposure to any other sector because all incremental coal was meant for power with the shortage and all that and that has resulted in substantial amount of imports both by the power sector as well as the other sectors.

So if Coal India has to continue with the same pace of production, if it can fix its evacuation issues right, it can evacuate all the coal, the next thing that it will require is to increase the consumer base.

Maybe add more consumers from other sectors as well, start giving linkages and then the production, evacuation will continue at the same pace for at least five more years.

Import downslide advantage: Already the company is importing 240 million tonnes of coal which is equal to 300 million tonnes of domestic production. So there is a big scope for that kind of production (import) to go down and actually it's a very unique feature that in the first quarter the power sector imports have actually come down by about 10 per cent, so that should open up the market for Coal India.

Price parity: The kind of coal that we produce is internationally priced at less than $30 and another $7-8 to bring it to India shores, so at $40 that coal is really available.  So which is Rs 1500-1600 per tonne.

Coal India prices are now much closer rather very similar to imported. Very different situation from what it was a year back. The price equalisation convergence has taken place due to fall in international coal prices. International coal prices have bottomed out I feel.

Wage revision impact: Coal India has to absorb the impact of the next wage revision which is due from July 1, 2016, that we'll have to absorb largely through productivity improvement. Normally Coal India looks towards a price revision.

If 10-12 per cent growth in coal production happens then the capability of the company to absorb this kind of cost increases is huge.

source: http://profit.ndtv.com