Coal India likely to miss FY20 production guidance: ICRA

New Delhi: ICRA Ratings has estimated Coal India Ltd's (CIL's) production to fall short of its current fiscal's full-year target of 660 million tonnes by about 55 million to 75 million tonnes.

The government-owned company registered a year-on-year production de-growth of 23.5 per cent in September as operations were impacted by flooding of key mines due to heavy rains and labour issues.

In the first half of the current fiscal, the miner's coal production witnessed a de-growth of 6 per cent year-on-year in stark contrast to the healthy production growth of 7 per cent achieved in FY19.

Thus in order to achieve the targeted annual coal production or come anywhere close to the annual guidance of 660 million tonnes and, given the first half slippages, CIL would have to step-up to an average run-rate of 2.3 million tonnes coal production per day for rest of the year.

This looks an unlikely task, given that in recent times the central miner has been able to briefly sustain at the 2 million tonnes per day average coal production rate only in the months of March 2018 and March 2019. Consequently, fully recovering the lost ground during the second half will be extremely challenging.

"Given CIL's lacklustre first-half performance, coal stocks at domestic thermal power plants have steadily depleted from 33 million tonnes in May-end to nearly 22 million tonnes in September-end," said Jayanta Roy, Senior Vice-President and Group Head of Corporate Sector Ratings at ICRA.

"Since the north-based power plants contributed about 50 per cent of this inventory run-down, they will be more vulnerable if the ongoing production shortage persists. Mirroring the lower coal despatches, generation from coal-based thermal power plants fell by 4 per cent year-on-year in August and by a steeper 10.6 per cent in September." Not surprisingly, coal users have had to rely on imports to make-up for CIL's production shortfall in the current fiscal. As per latest official statistics, thermal coal imports have increased to 84.4 million tonnes in the first five months of FY20 compared to 70.9 million tonnes in the same period of last fiscal, registering a steep 19.1 per cent growth.

In previous years, bulk of the growth in thermal coal imports was coming from end-users in non-regulated sectors like captive power plants, cement and steel.

However, as per the initial trends seen in current fiscal, the growth in thermal coal imports has been evenly split between the regulated and non-regulated sectors.

As Coal India attempts to make good the lost volumes in the second half, the power sector is expected to be a much larger beneficiary of the incremental supplies, given that it gets a higher priority over supplies to the non-regulated sector.

Consequently, imports by the non-regulated sector are expected to remain elevated for remainder of the year as well, and overall thermal coal imports are expected to cross the 200 million tonne mark in FY20.

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