A week after being rapped by Competition Commission of India (CCI) for misusing its dominant position, proxy-advisory firm Stakeholders Empowerment Services (SES) has now blamed Coal India (CIL) for hiding operational inefficiencies and failing to present data in a holistic manner to investors.
In its 12-page report that analyses CIL’s performance, SES said the inefficiency in the company’s underground mining operations (UGMO) drained resources, lowered productivity, increased capital costs and negatively affected profitability. Separately, SES warned that operational inefficiencies pose material risks and has advised CIL to adopt segmental reporting to present a clearer picture to its investors, given the wide differences in operational efficiency, productivity and profitability of under ground and open cast mining operations.
The Mumbai-based proxy discovered the cost incurred by UGMO is three times greater than that of CIL’s open cast mining operations (OCMO). However, productivity from UGMO is one-fifth of the productivity of OCMO. Further, underground mines contribute 8% of coal produced but use almost 58% of labour force of CIL, whereas sales realisation is less than one-third of production cost of CIL’s UGMO.
SES pointed out that 8% coal produced from UGMO in FY13 resulted in an under-recovery of R12,830 crore at gross level against declared gross profit of R25,024 crore and increasing debtors are a cause of concern despite CIL’s monopolistic position.
Being a listed entity, CIL is required to disclose all material facts and discuss important issues related to its operations as stated under the Securities and Exchange Board of India (Sebi), SES said. “Certain operational inefficiencies have been hidden from the investors. Some of these inefficiencies are materially important and adversely affecting the bottom line... An attempt by companies to provide data, which does not convey any information or give data in a format which confuses investors, is an indicator of poor corporate governance practices,” SES stated in its report.
The report suggested that CIL should have discussed these inefficiencies, presented an impact analysis, enlisted reasons and disclosed a plan to tackle the decline in efficiency as part of good governance.
“CIL not only failed to highlight its inefficiencies but also buried them under statistics and averages. We believe that the company should explain to its investors as to why it is susceptible to financial conditions of its clients and what steps it is taking to mitigate the same,” stated the report.