Coal India hikes non-coking coal prices by 8%; what impact will it have on the stock?

Coal India stock price: Coal India (CIL) shares were in focus on May 31, Wednesday, a day after the central public sector undertaking announced the revision of non-coking coal prices with effect from today. In its regulatory filing, the company informed that its board has approved a price increase of 8 per cent over the existing notified prices for high-grade coal of grades G2 to G10. The company has taken the price hike after five years, as per Zee Business Research. The last hike was in January 2018. In fiscal 2022–23, the total volumes from coal grade 2 to coal grade 10 (G2–G10) stood at 20 per cent.

At 09:26 AM, the stock was trading 0.55 per cent lower at Rs 243 apiece on the BSE. 

"This will be applicable to all subsidiaries of Coal India Limited, including NEC, for regulated and non-regulated sectors. Due to this revision, CIL will earn approximately incremental revenue of Rs 2,703 crore for the balance period of the financial year 2023-24. All add-ons would be as per the extant practice," Coal India said in its statement. 

Brokerages are mostly bullish on the stock after the price hike. The company's FY24 income is likely to increase by Rs 2,700 crore. After the price hike, brokerages have estimated the operating profit to increase by 7–8 per cent. Further, this will offset the staff expenses of Rs 5,500 crore in FY24, they note.

CLSA has maintained a "buy" rating on the stock. However, it has cut the target price from Rs 280 to Rs 277. JP Morgan has assigned "overweight" to the stock with a target price of Rs 290. The brokerage notes that the 8 per cent hike will offset a large wage hike at the company. The brokerage expects the company's outperformance to continue. It added, "If e-auction prices were to collapse from here, we would expect another round of Fuel Supply Agreement (FSA) price hikes, with an increase in the lower grades of coal."

JP Morgan further noted that the price hike is only on the higher grades of coal (G2-G10) and not on power sector coal (G11-G17). 

Coal India: Q4 Numbers and staff wage hike

Coal India Ltd., the world's largest coal miner, reported earlier in May a 17.7 per cent drop in its March quarter's (Q4FY23) net profit on higher provisions made for wage revisions for employees. Consolidated net profit of Rs 5,527.62 crore, or Rs 8.98 per share, in January-March, is compared with Rs 6,715 crore, or Rs 10.86 per share, earned in the same period a year ago, PTI reported, citing the company's filing with stock exchanges.

The decline in profit in the fourth quarter of 2022–23 (April 2022–March 2023) was despite coal production and dispatches to users. The company said salaries for non-executives are due for revision on July 1, 2021, and pending the finalisation of a wage agreement with unions, a provision of Rs 5,870.16 crore has been made in the quarter.

This is compared with the Rs 475.28 crore provision in January–March 2022. For the full 2022–23 fiscal, Coal India made a provision of Rs 8,152.75 crore as against Rs 1,080.97 crore provided in the previous 2021–22 financial year.