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CIL may Feel the Heat as Profit Margin May Reduce Through Auction Based Coal Pricing

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Coal India's (CIL) profits may take a dip if the company has to sell coal at a price that is determined through auctions every five years, according to a former executive of the state-run miner.

Source: ET

SNP Insight

Auction based coal pricing for non-regulated sector will prevent CIL to charge premium price on coal supply. This may reduce the profit margin for CIL. As the price of production going to increase 60% from current stage, if auction price don’t compensate this increase then CIL may lose annual revenue. This will impact spending plan of CIL in future mine development to achieve 1 Billion tonne production target by 2020. It may force CIL which is a zero debt company to raise money through debt for its future investment. But unregulated sector like steel & cement may not have to pay the premium price on coal procurement. This will reduce their production cost and boost the industrial production in country.

Source: SNP Infra Research