Coal India boosts capex plans by 15% for fiscal 2016

Mumbai: State-owned Coal India Ltd will boost capital expenditure by 15% in 2015-16 to increase production to 550 million tonnes, a jump of over 8%.

The world’s biggest coal producer proposes to invest around Rs.6,000 crore in 2015-16 in capital expenditure, it told the stock exchanges on Friday.

The miner will also spend around Rs.6,000 crore to develop railway tracks and other infrastructure in the fiscal year that starts on 1 April, it said.

This is an almost 15% rise from the capital expenditure target of the current fiscal year under which Coal India plans to spend Rs.5,225 crore plus an additional Rs.4,500 crore to acquire overseas coal assets and development of coal fields in Mozambique, according to the company’s 2013-14 annual report.

The additional investment in railway tracks and infrastructure development is expected to add impetus to Coal India’s aim to double its output in five years, analysts said.

Nomura International Plc., for instance, expressed hope in a 13 February report that the government’s various initiatives to increase coal products augurs well for “volume-led earnings growth prospects” for Coal India.

The miner’s production increased by an annual rate of 7.3% in the nine months to December to 355mt, compared with muted growth of 2.3% in 2013-14. At the same time, the company has also seen a pick-up in off-take by 3.8% year-on-year in the same period against 1.4% a year ago. This was largely aided by a jump of 10.7% and 6.3% in production and offtake, respectively in the fiscal third quarter.

Coal India is banking on Mahanadi Coalfields Ltd and Western Coalfields Ltd, two of its largest producing units, which account for a third of its production, to show double-digit growth in output in the current fiscal year, which will keep its production growth in the range of 8%, according to the company’s target in its annual report.

For the current year, it plans to cross 507 million tonnes in production and plans to achieve a billion tonnes in production by fiscal 2020.

“We believe the production growth target is a bit too optimistic. However, we believe production growth will definitely inch up going forward, as compared to the muted growth over recent years. The company has consistently missed its production targets with a CAGR (compounded annual growth rate) of just 2.8% over the FY 2009-14 period, largely due to its inability to start new projects or increase capacity at existing mines on account of land acquisition issues,” said a 30 January report by brokerage Angel Broking Ltd.

It said Coal India’s new mines, which are expected to contribute up to 115 mt of additional production, are stuck in land-acquisition hurdles with delays ranging from 2-7 years.

On Friday, Coal India’s share price closed at Rs.382.70, down 0.62%, while the benchmark Sensex fell by 0.78% to 29,231.41 points.