Coal India’s flat Q1 growth puts stiffer tagets of management a far cry from reality

Coal India’s flat Q1 growth puts stiffer tagets of management a far cry from reality

State-owned Coal India Ltd (CIL) reported a near flat growth in production during the April-June quarter (Q1) this fiscal, although the top management was in favour of keeping a stiffer target despite the muted growth. The company reported a 0.1% growth in production to 136.96 million tonne (MT) in Q1, against 136.85 MT in the year-ago period.

A CIL official said the company’s ability to increase its production had come to a near saturation for which any significant growth is a far-flung possibility.

During the first quarter of the last fiscal, CIL registered 15% growth in production compared to the same period in the previous fiscal.

On the back of such production growth, chairman AK Jha announced an aspirational target of producing 652 MT by the end of FY19 and wanted to set a stiffer target of producing 700 MT in FY20.

However, CIL ended up producing 607 MT in FY19 and so reaching the aspirational target would be the primary goal this fiscal. But, the muted growth in Q1 has given an indication that it would be even difficult to attain the aspirational target this fiscal.

Q2 is generally not the ideal period for production to pick up because of monsoons and CIL generally produces its highest during the last quarter. The momentum of it continues till the first quarter next fiscal. So, a flat Q1 is generally indicative of a flat year, a CIL official said.

According to the memorandum of understanding with coal ministry, the firm envisages a 8.5% growth in production to 660 MT in FY20.

The state-owned miner had registered a 7% growth in production in FY19 and so targets a 1.5 percentage point growth in its growth target for 2020. However, this doesn’t seem to be achievable because there are bottlenecks in removing the over burden (OB), a necessity to get access to coal seams.

The contract for overburden removals are not yet finalised, for which there was slow OB removal in Q1, which hampered growth in production. But, OB removal will have to be in tandem with mines safety and the company was awaiting a new mine safety policy.

According to a mine safety official, more production means getting deeper into the seams even in the case of open cast mining and calls for more OB removal, which can make a mine unstable. Therefore, finalising contracts for OB removal doesn’t only call for removing the top soil but it also requires adequate technique, an official said.

However, coal offtake has also witnessed a 0.1% dip to 153.29 MT in Q2this fiscal, against 153.47 MT during the corresponding period last fiscal.

Production rose 0.5% in June 2019 to 45.08 MT, against 44.87 MT in June 2018, though offtake further went down by nearly 1.6% to 48.86 MT in June this year.

This shows the demand for coal has also come to a plateau as power plants are out of critical stock situation. At the present production level, a set of power plants have been getting 90% of their annual contracted quantity and the rest other plants have been getting between 75% and 124% of the annual contracted quantity. So, there was no pressure on the part of CIL or the railways to push more coal to the power sector during the first quarter this fiscal.

CIL subsidiaries South Eastern Coal Fields and Bharat Coking Coal have registered 14.1% and 15.8% decline in production in Q1 FY20 while Eastern Coalfields, Northern Coal fields, Western Coalfields and Mahanadi Coalfields registered 5%,7%, 23.5% and 7.2% growth, respectively, during April to June this fiscal.