In a notification, with effect from November 14, Coal India (CIL) has increased the surface transport costs payable by the purchaser for evacuation wherein Coal India arranges for the transport of coal up to the loading points at a distance of more than 3 km and less than 20km.
Media reports cite management stating the surface transport charges (which have not been revised since 2009), have been hiked to take into account the substantial rise in diesel prices following the de-regulation of diesel prices by the Government since September 2012.
Based on our interaction with management, we understand that the bottomline may be augmented by R300-400 crore over 12 months.
Notably, this development would not enhance CIL’s reported FSA realisation (the topline) as CIL includes ‘recovery of transportation and loading cost’ as part of ‘Other Income’.
The revision in the surface transport charges would mitigate, to an extent, the drop in the FSA realisation seen due to grade slippage in 2QFY14
We are reviewing our estimates; we expect near-term price performance to remain weak on account of disinvestment overhang and concern over the drop in FSA sales realisation seen in Q2 FY14.