Coal India net profit falls 38% on employee costs

Mining major Coal India Ltd (CIL) reported a 38% drop in its consolidated net profit during the March quarter mainly on account of a steep rise in employee costs and provisioning.

Profits of Coal India and all its mining subsidiaries taken together stood at Rs 2,716 crore for the fourth quarter ended March as against Rs 4,398 crore in the corresponding quarter of the previous financial year.

The drop in profits was way below analysts expectations of about 7-10% fall.

Whereas, sales grew 17% to Rs 35,440 crore during the quarter against Rs 30,362 crore in the year-ago period.

There has been a 17% spike in the employee benefit costs, which rose to Rs 9,229.10 crore during the quarter from Rs 7,843 crore a year ago.

The company revises salaries of its 3 lakh employees, most of whom are miners, every five years. With the last revision taking place in 2011, Coal India's army of miners is up for a salary hike effective July 2016.

While the last hike was 25%, this time the workmen's unions have demanded an increase of not less than 50%; though it is widely expected that the real appreciation would be much less.

The negotiations began in November last year with the formation of 10th Joint Bipartite Committee for the Coal Industry and the process has been been delayed following the sudden removal of Coal India's personnel director Mohan Das in March 2017.

Following the wage revision due, costs accounting for employee expenses have come as per analyst expectations though.

Total wage bill of Rs 33,514 crore for FY17 has come below some of the analysts' expectations of around Rs 35,400 crore.

Another reason for the drop in profitability has been sharp rise in provisions from Rs 291.25 crore to Rs 1,238.69 crore, an over fourfold jump.

The rise in provisioning have hit margins hard.

"Ebitda (earnings before interest, tax, depreciation and amortisation) for the quarter fell by 39.2% year on year to Rs 3,387 crore with a corresponding margin contraction of 1140 bps. Ebitda margin for the quarter stood at 14.6%. This margin contraction was aided by increase in provisions to Rs 1,213 crore in Q4FY17," India Infoline Research said.