E-auctions to benefit CIL
2 min read . Updated: 04 Apr 2023, 12:25 AM IST
PremiumThe company produced 703 million tonnes of coal in FY23, up 13% from a year earlier
New Delhi: E-auctions hold out promise for Coal India Ltd in the year ahead even as the state-run miner likely auctioned 60 million tonnes of coal online in FY23, analysts tracking the sector said.
The company produced 703.2 million tonnes of coal in FY23, up 12.9% from a year earlier, and crossing its 700 mt target. Offtake during the year was 694.7 mt, up 5% from 2021-22. Coal India sells most of its produce under fuel supply agreements (FSAs) with power producers. It sells some produce in open markets, but what’s more profitable is e-auctions, where it sells about 10% of its volumes. Since output and sales are expected to rise further in FY24, the e-auction volumes are likely to remain supportive of profitability.
Analysts at Motilal Oswal Financial Services said: “Though the e-auction premiums have cooled off from their highs, they were adequately compensated by higher volumes for e-auctions. We expect Coal India to register better sequential performance in 4Q with higher volumes for the e-auction and almost similar levels of premium."
E-auction premiums refer to the price fetched by the company above the notified prices; however, premiums have fallen with declining international coal prices. Premium hard coking coal is down around 10% from the previous month to around $351 a tonne, on the back of easing Australian coal supply, which was disrupted due to climatic conditions and logistics bottlenecks, analysts said. However, Coal India’s rising volumes may make up for the declining international coal prices.
E-auction premiums will also depend on power demand, analysts said.
Elara Securities analyst Rupesh Sankhe said e-auction premiums have come down with the decline in international prices. However, power demand is currently at around 185 GW, and once it rises past 200-210 GW, it may remain supportive of e-auction premiums. Peak demand is expected to reach 225 GW.
In an attempt to meet peak power demand during summer months, the government has allowed higher coal imports and asked power plants using imported coal to run at full capacity. Port operators are also expecting significant rise in coal imports. Analysts said while imports may ease the pressure on domestic demand, it may not have a significant impact on the e-auction premiums or demand. Therefore, analysts have maintained a positive view on the earnings of Coal India. Outlook for Coal India’s production is also improving, and its overburden removal (OBR) reached 101.4% of the target. The removal of soil and stone is known as Over Burden Removal (OBR). The increase in OBR removal is to make future coal excavation easier and improves the volume outlook for the company targeting 780 MT coal production in FY24. The growth was 21.6% over a similar period of FY22 and the 294 million cubic meters volume expansion in a single year is the highest ever increase, Coal India said.