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Coal India Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Post Results Call of Coal India, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Modi from ICICI Securities. Thank you, and over to you, sir.
Thank you for joining this important call. We are very pleased and honored to host Mr. Pramod Agrawal, Chairman and Managing Director of Coal India Limited for an investor call post the Q3 FY '21 results and also to discuss his views on the recovery of coal demand in India. Along with him, we have Mr. Sanjiv Soni, Director of Finance; Company Secretary, Mr. Viswanathan; and other head of departments. On behalf of ICICI Securities, I thank you all for joining this call. Over to you, sir, for initial remarks, and then we can have a Q&A. Thank you, and over to you, sir.
Thank you, Rahul. Thank you all for attending this con call. As you know that post COVID, things are improving, the demand for energy is increasing. And in the last 2, 3 months, November, December and January, the energy generated through thermal power stations -- coal-based energy has increased by about 8%. But unfortunately, that is not getting reflected in our offtake, mainly because all the power plants who were having very high stock of about 30, 34 days, they have now reduced it to 18 days. Means in tonnage terms, it was in July, the total highest stock was 51 million tonnes at the power stations, which has now come down to 34 million tonnes. We have tried our best to compensate this by increasing our offtake in nonregulated sectors. We have increased the amount that was offered in nonregulated sector, and we have almost increased it by 60%, 70% in the sense that last year till January end, the total quantity booked under NRS in e-auction was about 60 million tonnes, which has now increased to 92 million tonnes. This gives us comfort that in this year, against the last year's complete booking of about 68 million tonnes, we will be doing a booking of about 120 million tonnes. But our 80% demand -- our 80% supply takes place to power stations and only 20%, 25% takes place to other sectors. So this 20%, 25% cannot compensate the loss that is happening in the power sector. The loss that has happened in the first quarter could not be compensated completely till now, but I'm quite hopeful that the way the demand is increasing and the way the stocks have depleted, because now 18 days stock is only available in the power stations and they are mandated to keep 19 days demand, so now the offtake must increase. And post -- from March onwards, it will be the supply constraints which will -- which can affect the supply rather than demand. We are quite hopeful that the way the country is developing, we will be able to meet all the demand. There will be quite a good demand for our coal. International prices too are rising. And so we are hopeful that even in e-auctions, et cetera, we should get good returns. In the first 3, 4 months, there was hardly any premium we were getting. But last month, the average premium was 25%. Till now, on the average, we have got a premium of 16%. We can say that this is a loss compared to the last year because the last year, the premium was 40%. But in the current scenario, the most important thing is to keep the coal going so that the production can be kept at the -- production -- the speed of production can be maintained. So that is the most important criteria and which we are trying to follow. This year is a tough period. We hope that COVID is now behind us and coming months should be better. Thank you. Thank you, Rahul. Are you online?
Yes, sir. Mallika, can you start the Q&A, please.
[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.
I have 2 questions. The first one is on FSA realization which is down Q-o-Q. Any specific reason for that?
FSA realization, you are talking in the per tonne basis? Or you are talking in terms of quantity?
No sir, per tonne basis, price.
That's basically because we have not taken any performance incentive this year. And we are not imposing penalty because of short lifting. Because of COVID, the force majeure conditions were there and it continues to be there. So because of these 2, the realization is slightly down, FSA realization.
But sir, in Q2, the realization was like INR 1,412 per tonne and in Q3, it is down to INR 1,354. So I thought that you would be foregoing things -- sorry, foregoing your performance incentive and not imposing penalty in Q2 also. So my question is, why it is down Q3, specifically?
I won't be able to reply this specific question because -- maybe because the mix of the quantity of the coal is different in this quarter than the last quarter. But then on average, it should have met. I'll have to check, and I'll give you reply separately.
Okay, sir. The second question is on receivable. If you can let us know what is the receivable at the end of December and, if possible, January?
Receivables are almost constant. They are in the range of INR 21,500 crores. Now this December numbers was INR 21,234 crores. In September also, it was in the same range of INR 21,500 crores. Now also in January, and it is in the same range of INR 21,600 crores. So whatever we are selling now, we are getting the money. But whatever is backlog, it is -- we are finding it slightly difficult to recover that.
The next question is from the line of Rahul Jain from Systematix.
Sir, my first is on, there is a notification from the Ministry of Mines, where they are saying that mines which have been allocated post 2015, there will be additional royalty on that, and the Ministry of Coal has to submit its recommendation on that. So what do you think would be the liability? And what is the breakup of our mines which were allocated pre-2015 and post-2015?
Most of our mines are allocated before 2015. After 2015, hardly 1 or 2 mines have been allotted. And some of the mines are given as custodian. So mines -- those mines are being now auctioned. But all these mines were something that's given to us. And I don't understand -- know of anything in which they are going to impose any extra royalty on any of our mines.
Right. Right. Right. Okay. So you're saying that you don't have any liability which will come out of...
To be honest, there is no such royalty as of now.
Okay. Okay, sir. And sir, in terms of your new ventures, which you're talking about, like solar chips and some of the other things, what is the kind of capital allocation that we have thought about?
See, in most of the diversification projects which we are thinking or we are exploring, we are not going to take any technology risk or too much of capital risk. What we are proposing that we will form an SPV, get all the clearances and offer this to some partner who can come along with his technology and who can invest most of the money. So from the side of Coal India, capital investment will be very minimal, in the sense that we will acquire land and maybe provide the infrastructure. Beyond that, we are not going to do much.
So you've not firmed up any numbers on any of these ventures so far, right?
From Coal India side, we have given some numbers, but those numbers are very small. Therefore, it may -- in a 5-year project, there may be about INR 400 crores, INR 500 crores expenditure or something in that range from Coal India. The rest of the money should come from the partner.
Right. Right. And sir, lastly, we have this wage negotiation coming up this year. Have you thought of any possibility of price increase around that? Or is it like because you will have some pressure from your competitors like solar is also doing very well and things like that, that we may not have a price increase. Any thoughts around that?
This we are thinking, and it will come very soon, but it's very difficult for me to give any date for that. But definitely, we will compensate -- we will more than compensate what we will give as a wage increase.
The next question is from the line of Ashish Kejriwal from SAM Capital (sic) [ DAM Capital ].
Sir, 2 questions. One is on debtors, you said INR 21,500 crores. But what we remember was at the end of second quarter, it was INR 23,300 crores. So is there anything net or gross amount in that? And secondly, we were expecting this to get some money out from -- after Diwali, but still we are not getting it. So any course of action on that?
See, I don't -- INR 23,500 crores might have been gross. What I'm saying today is net amount, net of everything. So to my knowledge in October, November and through December, this was only INR 21,500 crores. And in September and also INR 21,253 crores. So it is range bound in that only. Yes, we were expecting that increase after Diwali. But unfortunately, the liftings are not what I was expecting. In December, actually, the lifting was less than last year because in November, October, September, on all those months lifting was much more than -- am I online? Am I audible?
Yes, yes, sir. Yes, sir, you're audible.
Heard some beep, so I thought I've got disconnected. So I was expecting that same trend will continue in December and January. But unfortunately, the lifting was not so good because all the power plants are reducing their stock instead of taking coal from us. So we have missed that time. But now the -- as the demand is increasing from the coal-based energy, and I said that in November, December, January, all the 3 months, increase is in the range of 8%. So now we are putting pressure on all our consumers to make the payment. Maybe till March end, we won't be in a very strong position. But from April onwards, when the demand will further increase, definitely we'll put all the pressure.
So sir, in case you are not getting it till March, then our free cash flow will be very low. And then is there a possibility of any incremental dividend on it because your all the money is stuck with the debtors?
It is not all the money is stuck with the debtor. I had promised that this year, the dividend will be in the same range that last year. So for this year, I should not say much beyond this, but then there will be another interim dividend and one final dividend. So we will be giving continued dividend continuously at regular intervals.
Sure. And sir, secondly, on FSA realization, are we seeing any shift in customer preference, like customers who have bought on a linkage coal auction at a higher premiums and now they are getting it at a lower price in the e-auctions. So have we seen some kind of shift in that customers? And because of that said, our FSA realization was low on a Y-o-Y basis?
Some customers have shifted out, but that total quantity out of that shifting is not very significant. It is either 5 million or 7 million tonnes, in that range. So that is not something very significant. But we are not going for a trench fight as of now. So this is putting a lot of pressure on the customers, and they are not exiting off -- not exiting the asset sales.
The next question is from the line of Raashi Chopra from Citigroup.
Sir, on the CapEx, what is the areas going to be -- are you on track for INR 13,000 crores this year and what should we expect for next year?
This year, we are targeting for INR 13,000 crore. Next year, it will be INR 16,000 crores or INR 17,000 crores. But all this CapEx are on development of our evacuation system on -- so that major constraint that we are facing is basically that how to evacuate the port. As I had mentioned earlier also, we are mechanizing a lot of our mines in the sense that evacuation system -- evacuation which is taking place from the trucks, et cetera, will be done through a full handling plant and directly loaded to the wagons. So a lot of money will be spent on those things. And sort of inducting some high-grade machines so that production -- productivity can be increased.
And sir how much [Technical Difficulty]
Your voice is not clear.
Sorry to interrupt, ma'am. Your voice is breaking. I would request you to move to a better reception area.
And sir, how much is spent until January, how much CapEx?
Till January, we have spent something like INR 9,300 crores.
Okay, sir. Sir, just a bookkeeping question. The -- what was the dispatch, the total dispatch, total 9% in the quarter, what was the breakdown between power and the non-power sector, in terms of growth or volumes?
Raashi, can I give you this reply separately, but 9% is overall. And I think 20% was in NRS and almost 7% in Power, but these are by my -- just going by my memory. But then -- okay, just a minute. 50% is in -- sorry, I won't be able to give you right now. I will give you separately.
Okay, sir. Okay, sir. No problem. And you said that the e-auction premium in the last month was 25%. Did I get that right?
25% is the premium.
The next question is from the line of Indrajit Agarwal from CLSA.
Couple of questions. One is more on the medium-term side. With the government auctioning so many mines on the commercial coal mining sector and also giving so many incentives, how do you see demand for our coal, particularly on the e-auction side, say, 2, 3, 4 years from now?
See, in the next 2, 3, 4 years, these mines will be hardly producing anything. The total auctioned amount, quantity, the PRC, the peak rated capacity of all these mines is about 50 million tonnes. So that amount -- that quantity is not so significant that it can affect. And in next 2, 3 years, nothing is going to come out of those mines because they have to take all the clearances and then they have to start producing, which takes a lot of time. See, in the mining business, one cannot start any mine within 3 years. So I don't think that in the medium range, there is going to be any challenge. Actually, what is the challenge is to increase the evacuation from our mines. If we are -- if we can successfully evacuate our coal from the mines, then there will not be any challenge.
Sure. That's helpful. My second question is on the closing down of underground mines. Any progress on that? What is the kind of savings you can look for? And when will that reflect in our numbers?
Yes. Last time, I said that we will be closing down 23 mines or upgrading their production in these mines. We have already closed down 11 mines. 5 mines will get closed by 31st of March. They have promised to -- 7 mines, they are planning to upgrade. If we are able to upgrade them, I mean increase the production substantially, we'll continue them. Otherwise, we will close them down again.
And what are going to be the cost savings that can happen from these 16 mines that we have closed down so far?
In 16 mines, we should do a saving of about INR 300 crores to INR 400 crores.
The next question is from the line of Pinakin Parekh from JPMorgan.
Sir, I have 2 questions. My first question is that if you look at provisions, they have again increased sharply on a Q-on-Q basis to INR 500 crores. And in the last 2 quarters, the provisions of nearly INR 850 crores is more than 7x of what was seen in the entire F '20. So what do these provisions relate to and what's the outlook for this? And my second question, sir, relates to dividend. There was a comment by -- in the government quarters that state-owned companies should now look to give quarterly dividends. What is the company's view on this because quarterly dividends will also be welcomed by all sets of investors because that will just give more stability and visibility to their cash flows in terms of dividends, sir?
See, the first question about the provisioning, yes, the provisioning, that is basically of some dues which were not recovered and 3 years old dues have to be provisioned in our balance sheet. That's why they have been provisioned. But most of these provisioning, we will get back because these are the -- from governments. So DISCOMs are really in crisis at this point of time, but then most of it will be recovered. These dues are not something from the private sector or something. So there should not be any problem on this account. Next year onwards, when we regulate -- start regulating the supplies, perhaps we'll be able to get all those dues. Second thing is your quarterly dividend, the government has said that there should be more frequent dividend payout, not that once in the yearly type of payouts. We have already paid dividend once. We expect that another interim dividend we should be in position to pay and there after a final dividend at the time of -- on the final basis. So I won't say that we will be paying every quarter, but at least twice or thrice a year we will definitely try.
So just to clarify, while you mentioned that the dues are from the government entities, and hence, they will eventually be paid, would it be fair to assume that once we enter April '21, many of this INR 21,000 crore existing receivables, from an accounting perspective, would have to be provided for if they are not paid fully? Because, yes, from a cash flow perspective, they will eventually come, but are we looking at possibility that from an accounting perspective, provisions sharply rise over the next 1 to 2 quarters?
No, no. Because about a year back, the total -- this outstanding was only INR 6,000 crores to INR 7,000 crores. These outstandings have increased in this year only, in one year -- last one year or maybe 12, 13 months -- 14, 15 months. And if it becomes 3-year-old only, then the provisioning has to be made. So I don't expect that this provisioning is going to be made.
The next question is from the line of Kamlesh from Prabhudas Lilladher.
Sir, one question on the part of capital allocation. Sir, time and again, this -- all this news flow continues to come like, say, we are partnering with NALCO to invest...
You are not -- your voice is not very clear. Can you...
I was asking a question that some or the other news coming from the front of capital allocation, like we are partnering with NALCO for investment in smelting capacities, then this SPV for solar wafer and all that. So like can we have like broadly some capital allocation policy going forward, though it's very appreciated that we are investing heavily on our transportation side, but all these other investments, so what is the broad policy on that front?
See, most of -- as I mentioned earlier also that most of the things, like the new ventures like solar wafer or anything, that will be mostly in the sense that -- or even coal gasification, we are looking for a partner who can come and invest the capital and maybe we can share the equity in the sense that the technical -- this technical risk and capital risk will have to be taken by him. And all these are being floated in the -- I mean tender will be floated in a way that only if we find it profitable and the IRR is quite -- return is good, then only and a long-term commitment is made by the government for purchase or to -- on supply side, then only we will enter into this. So -- and as I mentioned earlier also, that capital investment, expect for maybe in -- if we go ahead with the aluminum smelter plant, which -- in which case, NALCO has got alumina, which is one of the cheapest in the world, and -- we may partner there. So otherwise, the capital allocation will be very less.
Okay. And sir, lastly, like in last quarter, we were very confident that we would be able to grow our dispatches or offtake. But like even in the last quarter, we benefited primarily because of the weak base, like volumes were down in last year, like October 2019 to December '19, by roughly around 20-odd percent. And on that weak base, we were able to show growth. And our volumes are at the same levels as it was around 2.5 years or 3 years back. So now we are saying that there is inventory destocking at the coal plant -- at the power plant. But this theme has been there for the last 4, 5 years, and we are not able to push volumes or grow volumes despite the fact that there has been heavy increases in all alternate fuels, like say, be it pet coke or the imported coal, but we are not able to take any benefit out of that by pushing volumes. So really surprised to know on that particular front. Like even in the January, our dispatches are down 5%. February, it's again down, 3% to 4%. And the base, base are not that significant. It's hardly 6% base last year.
I mean, I couldn't get your point -- the last sentence, hardly...
Like even last year, we had the base, growth in the last year was 6%. Even on those reasonable base, we have -- our volumes are in decline territory.
You are right that the growth has not been seen in December and January. December, still there was a short lifting. But in January, there was a reduction in -- actual reduction in what we did from the last year. But we must compare this situation with what -- with the overall thing that is happening in the economy. If economic degrowth is about 7% to 8% and -- about 10% and it would have otherwise grown by 5% to 6%, so the difference is about 16% to 17% net, and that is in the real terms. So if that is the situation, it will be rather difficult. The only option for us was to capture the NRS sector and to go heavily on the e-auction thing. And we have gone very heavily on that. We have already booked about 92 million tonnes. This coal is getting lifted. So -- but the reduction that has taken place in energy sector cannot be easily compensated through NRS sector. NRS has become completely dependent on imported coal. We have to give them confidence that whenever they require the adequate quantity, will be offered to them. That is something we are trying to do. And once we are successful, we will definitely. If power plants have reduced their -- see, the consumption can be indicated from the fact that the power plants have reduced their stock by 14 million, 15 million tonnes. The total stock now is 18 days stock is there with the power plants. They cannot reduce it further because the CEA mandates that 19 days stock has to be maintained by them. So I'm quite hopeful, and I have got reason for that because the 18 days stock is not something which -- they should maintain and they cannot further reduce it. I'm quite hopeful that in coming months, the stock -- the offtake will improve. But if the economy does not grow, one cannot predict beyond certain point.
The next question is from the line of Tarang from Old Bridge Capital.
My question is specifically on your plans of wanting to foray into aluminum smelting. So essentially, while I understand that you have coal and you can tie up with NALCO, but just wanted to understand what's the strategic thought process about entering into hot metal production when there is a global surplus domestically as well as internationally?
See, the growth in aluminum consumption in the country is increasing. Our consumption, 5%, is almost the lowest in the world. But -- I don't remember the exact figures, but then it is less than half of the annual average consumption of the world. And whatever projections have been done, there appears that there will be improved demand and there will be deficit in the country. I'm not saying that we have entered into it. We are just exploring that possibility. We have -- we are getting the feasibility studies being done. Once the feasibility study is done and we find it profitable, then perhaps we will take up further steps. As of now, we are just -- we have formed -- we are trying to form the SPV so that we can do the ground work. It doesn't mean the actual investment has been taken. But rest assured, if the feasibility is positive and if there is the possibility of selling aluminum in the country, then only we'll go ahead.
Okay. And sir, just to double check, while for the other projects you said that the capital risk and the technological risk will rest with some others, would the same principle apply even here?
NALCO, in the sense, we have not finalized what will be the thing. But in this also, we will like to induct some partner who can come with a good technology.
The next question is from the line of Arun Kumar from Mellon Capital.
I wanted just to ask, like your -- the demand perspective going ahead? And one more question that I wanted to ask about your new ventures that you had taken into your solar power and all. So what is the CapEx plan over there? And like how soon do you expect them to venture out?
See, about the demand, I said that demand must rise in coming days because the stock already in that powerhouses is depleted. They cannot further go down without risking the power situation of the country. So -- and we are putting pressure on them so that they can increase their stock because in April, May, June, the demand in the coming summer season, there will be -- it is likely that the demand will increase tremendously. So to my mind, the demand must increase in coming months. And in the last 3 months also, we are seeing that coal-based energy demand has increased by 8%. So that change if it continues, then the coal demand will definitely increase. Coming to the new ventures, I have mentioned that we have allocated very little money in next 2, 3 years. What we are looking for is somebody who can come and we facilitate them to establish the things. These are high-tech industry, means solar wafer is a high-tech industry and in which it will be very difficult without a person who is going to take that technology risk. In solar power, definitely solar -- this solar ventures in the sense that solar power, et cetera, installing the solar power, et cetera, we will like to go ahead and invest so that Coal India in coming years become at least this carbon-neutral company. Whatever we are using energy for the production of the coal, at least that much carbon is neutralized by producing solar energy. And actually, in certain pockets where we can use the solar energy captively, there the savings will be huge.
The next question is from the line of Parthiv from NVS Brokerage. There is no response from the line of the current participant. So we will move on to the next question. The next question is from the line of Vineet Maloo from Birla Sun Life.
Sir, my question is again regarding this capital allocation plan only. And although you said that you're still evaluating the financial and technical parameters, sir, if you look at especially aluminum industry, even though it might look like good industry from the outside, I mean, none of the players actually earn a double-digit ROCE in the country. All of them are stuck in the single-digit level, whereas if we look at Coal India, financially, they are significantly superior. So it is not -- I mean, we are not able to fathom why would Coal India want to steer away into such an industry rather than use the cash within existing business or green business like solar power generation or returning to shareholders. I mean this thought of -- entertaining the thought of entering aluminum industry is very perplexing to us as shareholders.
Vineet, there are 2 things. First thing, we are not saying that we are not going to invest in solar power. We are trying to maximize the solar power because there, even if we create infrastructure which is sufficient for our captive consumption, we will make a lot of money, means in the sense that power, whatever we are procuring from the grid is INR 7, INR 7.5 per unit, and whatever we do, the cost of this will be not more than INR 3, INR 3.5. So there will be saving on that account, which I think should be a good investment. And solar energy is one thing where the future lies. So as an energy company, we must look into that. But -- and paying to the dividend, we are committed to pay good dividend every year. And in this crisis year also, we are trying to maintain the level that we've seen in the last couple of years. Coming to this, we will go into it only if we are satisfied that the type of money we are making. See, the type of money which we make in coal mining is not possible anywhere else because in certain pockets there are huge returns. But coal future is limited and hence if Coal India has to survive, it has to look for some business where we can do well. In this case also, if we find that the returns are good, then only we will venture there. As you are saying that it is single-digit ROE, et cetera, then perhaps we will explore that front and then come back.
Okay. And sir, when do we expect to take this decision? I mean what's the kind of time frame?
It will take another year or -- I mean let's see this -- not in coming 6, 7 months. Let the feasibility report, et cetera, come. We have engaged consultant for doing those things. Let them come, then we'll come -- we'll decide on that. But not 5, 6 months now the investment is going to be like.
The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.
A couple of questions from my side. One, you highlighted that the e-auction premium till now is almost 16%, but if we look at the last 2 quarters, essentially, it's probably in lower than single -- or, around single digits. So essentially, the next 2 quarters should see significant improvement in e-auction realization. Is that a correct hypothesis?
See, what I said that till now, the average realization of e-auction is 16%. In the last quarter, it was about 25%. First 2 quarters, it was slightly -- I mean first quarter was very less. Second quarter, it was slightly higher and then 25% last quarter. Since -- till January, it is 25% -- I mean average is 16%. That is my reply.
Sure. So around INR 1,500 kind of realization that we reported in third quarter, fourth quarter should actually see a significant improvement from that number?
I hope so because the response that we are getting is high, but then how the market turns is difficult to understand. And the international market is also high. So I hope it will increase. And we have booked 92 million tonnes. So -- and another 20 -- 30 million tonnes will be booked in this 2 months. And even if it increases to 30%, then 16% may go up to 17%, 18%. But beyond that, it will be difficult to expect this time.
Sure. No, what I was trying to highlight or if -- and get more sense, sir, is that the offtake has -- so the offtake has been reasonably lower. So it's still strong, but most of the offtake that would have happened in the last 6 months is of the bookings that were done in first and second quarter where the premiums were reasonably lower. So the bookings that were done in last 3 months where premiums are higher will start to reflect same in next 1 or 2 quarters in the P&L. Is that the correct understanding?
See, in the quarter, the price -- means, offtake price will definitely increase because in the last quarter, whatever booking has been done is at higher rate, that you are right.
Okay. That's helpful. And secondly, sir, despite all the uncertainties, et cetera, for next year, in terms of our preparation both from the production and from the evacuation perspective, what is the kind of growth that one can safely assume if demand bounces back for us?
See, we are expecting very high demand. But safely, if you would say that 10% to 12% type of growth, we should be -- easily available. In the first 3 months this year, the growth was not there. And actually, there was degrowth of about 20% or so. But still, we have achieved -- we are -- we will be closing at almost what we achieved the last year or slightly higher on that. So next year, achieving 12% to 13% growth should not be difficult if we start the next year, I mean, beginning of the next year with a good growth. In those 3 months, the growth can be very significantly high. And on the average, that will help us in achieving a good growth.
So essentially, for the full year perspective, 12%, 13% growth, demand permitting, should not be an issue with all these constraints normally that Coal India operate within, either in terms of production or in terms of evacuation, et cetera?
To my mind, it should not happen because today also, if there is a demand -- we are facing huge demand problems in 2, 3 subsidiaries like MCL, East area, in the CCL, in BCCL, ECL, and all these areas, if the demand would have been there, our lifting could have increased substantially since actually in ECL et cetera, we are unable to produce because the demand is not there. So I'm quite hopeful that in next year, if there is a demand, we should be able to get production increase by 12% to 13% easily.
And one, just for clarification purposes, you have been talking about maintaining last year's dividend. Just for clarity, when you are saying this, does this account for the DDT benefits, essentially, the actual payout from Coal India, including DDT, last year was more than INR 15 or so or around INR 15. This year, DDT is not there. So does that account for DDT?
Rakesh, will it be prudent for me to give such a specific reply? But is -- but I will give -- I'm, again, assuring that you will not be disappointed. Actually, I forgot to mention, Rakesh. Actually, in this difficult time when our production was not as high as we were expecting, our dispatches were slightly lower than last year, our cost of production has reduced by 3%. I missed out that in the initial remarks. And to my mind, that is a great achievement for Coal India. For the first time, we are seeing that there is a reduction in cost -- I mean total revenue expenditure. Last year, for 9 months, there was INR 56,000 crore expenditure. This year, it is INR 54,000 crores, which amounts to almost 3% reduction. And I think I'm quite sure that these trends should be maintained, and our labor is decreasing by 5% every year. If we maintain this trend, then the profitability should not be an issue if there is increase in demand.
The next question is from the line of Noel Vaz from Ashika Stock Broking.
Yes, sir. So I just -- most of my queries have already been answered. But I just wanted to know, specifically, so regarding BCCL, the offtake and the production has been impacted for FY '21. So what is the specific reason for it, sir?
See, BCCL is a coking coal producing company. But that coking coal was basically being used for power coal and rest of the time that coal was easily lifted. But this year, we are finding difficult because power plants are finding it cheaper to source coal from other companies. So that is basic problem with BCCL. Now we are tying up with -- means, trying to sell that coal for non-power purpose. And to some extent, we have succeeded in the sense that we have tied up with Tata to wash their coal and maybe 2 lakh -- 1.5 lakh tonnes every month, they will be washing and that will yield us very good results. We are trying to strengthen their washeries so that the washed coal can give us premium in the washed -- coking coal can give us premium. They are trying to sell their middling. But this year has been particularly difficult because they were not prepared for such a case. And we were relaxed in the sense that since the coal demand is there, there's no need to work on natural advantages that BCCL has. But I think that the way they are working, in the next 6 months, they will be able to improve upon their working and then their demand as a non-regulated sector will be huge, and that will help BCCL to come out of the situation.
Okay. And just one other thing. I just wanted to clarify. So the rail connectivity projects at the Lingaraj silo and the CERL, that East Rail Corridor, they are both expected to be commissioned by the end of March. So I mean, it is reasonable to expect it around that time? Or is -- I mean how -- what has the process been so far?
Lingaraj just held up because of one house there. The -- only 50 meters connectivity is left. We are following it up with district operatives on regular basis. And if that is removed -- and they have assured me that within 7, 10 days, it will be removed. So it is about 15 days only. So there is no reason that we should say that Lingaraj connectivity cannot -- Lingaraj silo connectivity cannot be completed before March 31. That Eastern Rail Corridor, the testing has been done and diesel engines have run on that train -- on that track. So to my mind, there is no reason that it will not be completed by March 31. They've assured me that everything is ready. And perhaps before March 31, it will be inaugurated.
The next question is from the line of Amit Dixit from Edelweiss.
I have 2 questions again this time. The first one is on OBR expenses. So while in last 2 quarters, Q1 and Q2, we saw some reversal of OBR expenses that -- but this time, again, they are in positive territory. So is it safe to assume that now we are done with preparing phases and -- for production, and we are all geared up to increase production? Is it a fair estimation?
To my mind, it is right what you're saying. Basically, OBR problem we were facing in Gevra, Dipka and all the mega mines where actually OBR removal has not been to the sufficient level. And we are trying to increase OB removal further. This quarter, we were facing a lot of problem of expertise because of which OBR was not up to the expected level, but then still our growth has been 20%. If we have to keep our mines in readiness to meet any demand -- sudden increase in demand, then OB removal is a very critical thing, and we are emphasizing on that. Over the year, if you see on the 20 -- 9 months or 10 months, our OB removal has increased by 20%. And still in certain mines, we are facing the situation where OB removal has to take place furthermore so that production becomes easier.
So is it fair to assume that going ahead, this will be in positive territory only, this OBR adjustment provision that we have?
Yes, yes, it will be in positive territory.
Okay. Sir, the second question is on essentially tax rate. So we find that this quarter tax rate is around 35% compared to 27% last quarter. Any one-off reason for that? And what tax rate would you guide for the full year?
I couldn't get your point.
Sir, tax rate, our tax -- rate of tax is 35% in this quarter.
Yes, tax rate -- see, there is holding of dividend amount of INR 508 crores for which we have provided INR 128 crores. So this is one thing. INR 128 crore, which we -- I mean this has been provided for, and it will be released after the dividends are released in the coming months. And then WCL from our loss-making company has become a profit-making company and hence, there was a slight increase in the tax. So these are all accounting things. I won't be able to -- but the tax rate is only 25%. We have not reverted to anything in tax.
Okay. Got it. So for the full year, would it be slightly higher than 25%? The -- or you will go back to some -- go back to like 30-odd percent or something?
No, no, no. We will remain in this 25% thing. We have opted for this. But some tax assets which were created earlier, which are being released or something of that accounting thing is taking place, because of which the higher thing has happened. But in coming months, it will get stabilized.
The next question is from the line of Vishal Chandak from Emkay Global.
Sir, as just Amit mentioned, there is an OBR which goes on a negative zone generally for the last 2 quarters, which moved to a positive territory this quarter. How should we look at OB -- is it possible to share a plan for the OBR going forward, as in what kind of numbers or cubic meters do we plan to do on a quarterly basis, the way we have a plan for annual coal production. Can we do something like that on that, so that at least, let's say, it's more predictable?
Coal production into 2.2x. That should be the average OB removal. Coming -- because there was a backlog in the last few years, this year has been slightly higher. Next year, again, it will be slightly higher. But thereafter, it will be stabilized in the territory of 2.2x, 2.3x. But OB -- very negative provisioning for OB removal is not a healthy sign for any mine. So it will be always prudent that we should do commensurate OB removal so that quality improves, so that productivity can be improved.
No, I completely agree on that part. Basically, it means that when we are doing provisioning, that means whatever was planned as per the mine life has not been achieved. So a provision has been created, right?
There was a backlog. If you see in the last 3, 4 years, continuously, we were removing OB in the range of 1,150 million cubic meters. That created a situation that in this year verticals were created in many of these mines. And then after rains, we tried to increase the production, that was a concern. Secondly, it affects the quality also. So we have been insisting right from the beginning in this year to remove OB. And I think we have been successful to a great extent.
Sure. Sir, my next question, again, was coming back to your investments in the aluminum business. I just wanted to highlight 2 points. One, Hindalco has clearly said that they do not want to set up more smelters in India. And when we look at the NALCO, a bunch of its profits are accumulated out of sale of alumina and not aluminum. So clearly, investment in aluminum smelter or partnering with them, I don't know how so far would it be feasible from Coal India's perspective, given the fact that the ROE in mining business is significantly superior and no miner in the world generally, other than Rio Tinto, has invested in the smelting capacities. So this would actually be not a very significant value-accretive step, in my view.
See, I have earlier mentioned also that we are exploring many things. And it's not that the -- all the things that we are exploring will be achieved. We are looking for things where the Coal India should invest so that it becomes -- it remains a economically viable company in the coming years also. As a coal company, it cannot survive for long. The first option is definitely the energy thing, solar energy thing or renewable energy, where we are definitely going to invest something, and the returns will be high. And all of you agree that, that is an area in which we must invest. Aluminum business is something that we are exploring. We are doing our due diligence. We have appointed the consultant. And as a government company, we cannot keep anything confidential. So all the things that we are exploring is in public discussion. Doesn't mean that we have already invested or we are going to invest. We are looking for opportunity. If we see that there is a good ROE, then only we'll invest. Let's wait for 1 more quarter and then perhaps, I will be in a better position to reply to all these questions.
Yes. That's very helpful, sir. Just lastly, if I may squeeze in one more. What are you looking sir -- what should we take as production guidance for FY '22? For '21, would it be fair to assume that 600 million tonnes looks a tall order as of now?
To my mind, 600 million tonnes is not difficult, but it will depend how the dispatches take place in coming few days. Next -- not few days, maybe a couple -- 2, 3 weeks. If the dispatches does not -- if the dispatch do not improve significantly, then stocking of the coal is something which should -- is not desirable. But if dispatch is good, then the production is not a problem. So crossing 600 million tonnes should not be a problem. Next year, I'm definitely targeting something -- 12% to 13% of growth, even more. But again, this stock of this year will and the demand next year will affect our production next year because the coal should not be stocked beyond a point. It reduces -- it's quality gets deteriorated -- it's quality deteriorates over a period of time. So we have to take that also -- that also we have to keep in mind.
So but when you're talking about 600 million tonnes, we are essentially saying that we'll have an output of 2.2 million tonnes per day for the fourth quarter in terms of dispatches. So I just wanted to confirm, are we on that run rate?
Production is, we are on run rate, we are doing more than 2.2 million tonnes nowadays. So achieving that type of production will not be difficult. Dispatch is still in 1.8 million tonnes, 1.9 million tonnes. If it touches to 2 million tonnes, which it touched last year, then production will be easy.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, just one question. You have been highlighting about focusing on some of the import customers and trying to supply them Coal India coal. Can you highlight any steps that you have taken, given what's happening in the international markets? Any steps that we have taken in order to convert some of those imports into domestic coal supply?
Okay. We have taken many steps. First thing, we have created another e-auction window just for import substitution and perhaps -- in that, we have booked about 8 million tonnes of coal. Secondly, we have relaxed the ACQ requirement from 75% to 80%. And we have said that beyond 80% also if somebody is demanding, we will fulfill. And so in many of the plants, you will see that we are supplying more than 100 million tonnes -- 100% of the requirement in the sense, if in certain plants, whatever their committed quantity was, we are giving more than 100% to them. So to that extent, for power sector, wherever blend -- for blending purpose coal was being used, it has reduced by 55%. Even for the power plants, which are located on the coastal area, we have approached them and since the price of the imported coal plus the shipping charges, et cetera, have increased, they have taken coal from -- means, I can give you some names also like Sembcorp's plant that have started taking coal from Eastern Coalfields Limited. And then the North Indian plants of Punjab, et cetera, Nabha and Talwandi Sabo, they never used to take coal from Coal India, now they are taking coal from us. So all these power plants, in power sector, we have been quite successful in replacing the imported coal. In non-power sectors, we were not able to supply earlier. We are supplying to all the nonregulated sector as well. And because of that only, this e-auction volumes have increased from 60 million tonnes to 92 million tonnes. And all this coal would have got imported if we would not have supplied to them.
Also, could you highlight non-power coal that you are supplying, what is the calorific -- average calorific value of that coal? Because one constant complaint we hear from non-power sector is about the quality of coal. So any views on that?
See, non-power sector, the whole range is there. But there are certain non-power sector consumers who require very high calorific value coal, which is not available with us. So to them, we are not able to tackle like cement manufacturers. But sponge iron, et cetera, who are taking coal in the range of 4,500 to 5,000 GAR coal, we are able to supply, and many of them have started taking 60% to 70% of their requirement from us. We have to -- we are now working constantly on improving the quality of the coal. The first thing that we have done is to improve upon our OBR so that the inadvertent mixing of the soil that was taking place with the coal has been stopped completely. Instead of using that blasting method, we have increasingly been using surface minus whatever band, et cetera, is coming in Indian coal can be separated at the time of production and the process is taking place continuously. So all the quality issues are being taken care of. We have already introduced a third-party sampling. They are -- and wherever the complaint is being raised, we are requesting the consumers to do a joint sampling thing of thing and Coal India is always willing to welcome anybody to see our mines and to see that whatever the coal we are supplying at the -- after this edge point. So that has definitely increased the confidence of the consumers. We are constantly interacting with our consumers. Actually, I myself have held 3 or 4 meetings with the consumers and the points that they are raising and they are general points, we are trying to tackle them at the -- very earnestly. I think in last 1 year the consumer satisfaction has improved tremendously.
The next question is from the line of Rahul Jain from Systematix.
Just one more question I had. Sir, your CapEx over the years has gone up quite dramatically, and you're giving a guidance of around INR 16,000 crores for next year. But there's a very big contradiction in the statement that you yourself are looking at coal being not having a great future. So why can't we look at more of outsourcing, more of low CapEx kind of production so you conserve cash for your future divestments -- future diversification and things like that?
See, Coal India has not invested properly in its capital building. We cannot continue to supply coal at higher levels unless we invest in -- I'm giving you examples where we are investing so that -- and numbers. So we have invested something like INR 3,000 crores this year for HEM, heavy equipment machinery. And maybe next year, again, the equipment, this number will increase. Unless we invest in this, quality coal and coal production cannot be increased from our mines. But still, we are producing about 30% to 40% of coal through our labor. It is very critical for us to improve the productivity of this labor. And this can be done only if in the larger mines we deploy very large equipment. With small equipments, we will never achieve the thing that we are targeting for. So that is one thing. Then we have -- land has become costly. We have to spend on land. Earlier, we tried to -- we used to get the land at the free of cost from state governments. Actually, the state governments have always been objecting, so there were always disputes. So actually, we have to pay a reasonable price to state governments for that land also. So in this year, again, we are investing something like INR 2,000 crores to INR 2,500 crores on this issue. Third thing is mechanization of the evacuation process. As I had mentioned in earlier thing also that we have identified 35 big coal handling plants for first-mile connectivity project, and I have promised that by March end, they will all be -- means, the work on the ground will start or the work order will get issued. Of that, 31 projects, we have issued -- not 31, 29 projects, we have issued the work orders and 2 more LOA will be issued tomorrow or day after. And next another 4 will be issued -- 2 will be issued in this month and another 2 will be issued next month. So that will -- all these are very critical. See, coal is going to survive for another 20, 30 years. If we don't supply coal and if we don't supply at a lower cost, it will become all the more difficult for Coal India to survive. And all these environmental issues are also significant. We have seen during the pandemic on the shutdown period that our mines are operating but our transportation was not taking place, and the environmental situation improved tremendously. So it was -- all the study says that the production of the coal does not impact the environment as much as this transportation through vehicles do. So this mechanized transportation is also very critical. And third thing on which we are investing heavily is basically rail connectivity. There are 4, 5 projects which were taken up earlier, which were not doing -- which were not moving fast. Now we have created a situation that by monitoring them regularly that all these projects are now working. And within next 2 years, all these projects will get completed. We are not wasting money. We are all using this money to invest...
Sir also coming from that your customers, there's hardly any thermal capacity addition in India. In fact, NTPC itself has said that they will not add any more thermal capacities in India. So who do you think is going to buy a lot of this coal that you plan to increase capacity and do so much CapEx. So I just want to understand what is your thought process over the next 5 years? Because eventually, you will have to end up generating power, right?
First thing that there is a lot of capacity in India which is not under production, which if the India has to grow, this capacity will be utilized. Second thing, power plants are operating at very low PLF. And this PLF has to increase if energy consumption in the country increases. Third thing, whatever we are producing, even if suppose we don't go for -- see, we cannot continue to transport or evacuate in the old manner as we were doing earlier because that creates lots of environmental problems, et cetera. Third thing which I wanted to mention is these projects, whatever capital investment which we are submitting, is going to take place in the next 5 to 6 years, it's not going to happen tomorrow or day after. And if the demand does not increase, then those major [ investments, ] et cetera, which we've taken ceases, so we'll stop there, and we will not develop the mine. So our CapEx will be reduced if the demand is not there. So CapEx is not something like installing a factory -- coal mining is not something like installing the factory and not running that. Here, whatever CapEx that we have -- is in the land, land development, rehabilitation, all those activities, and those will not take place in case the demand is not there. So our whole CapEx is linked to demand.
Right. Right. Sir, lastly, how much was our cash balance as of 31st December?
31st December, cash in our bank was about INR 12,000 -- INR 12,000 crores.
The next question is from the line of Anuj Sharma from M3 investments.
Sir, I just wanted to understand what are the constraints you see external and internal in a mine closure? And typically, how quickly can we accelerate this process?
See, the first thing is we don't close the mine unless the last thing was also excavated. That was the principle we were following. We are going to change this. If the last section has become uneconomical, then we should leave that coal and come out of it. So if that process, if that thinking changes, then a lot of mine closure can take place. And second thing is, I would say there was no monitoring. But in this year, last 2 years, we have been closing the mines. And actually, there are withdrawals from the mine closer fund. So this year also, there is withdrawal of about INR 500 crores. Last year, again, there was a withdrawal of more than INR 600 crores, INR 700 crores. So mine closure is now taking place. Earlier, it was a thinking that we should not close the mine unless the last -- even the last bit of the coal is not excavated. Now that thinking is changing, and we are closing the mines.
All right. So chiefly, most of the constraints are internal. There are no external approvals and constraints which slower your mine closure process?
To my mind, there is hardly any external pressure or an external constraint.
All right. My second question is related that once the mines get closed, how efficiently are the excess or the surplus manpower deployed to another mine?
See -- okay. If you are talking in the context of closing the mines that we are doing because of nonprofitability, am I right?
That's right. That's right.
Okay. Then that is -- I understood the word mine closure in the sense final closure. Yes, see, many -- the manpower is reducing rapidly. The range that I have said, 15,000 every year -- 14,000 to 15,000 is reducing every year, and it's likely to increase further in the next coming years. So in many of the mines, where we are closing down, they are all old mines. So there is some natural attrition that takes place. And certain official, means, manpower are required in other mines. So we shift those manpower to those mines. Though it is a difficult task, but when -- if there's no work at all, then the shifting takes place. Like the 80 mines that we closed down in last 3 or 4 years, initial manpower was 1,500 -- 15,000 or so and now the manpower left is about 4,000, 5,000. I can give you exact figure later on, but then that is the range I'm talking about. So actually, there was a reduction of 12,000 manpower. But another point that we have found that by closing the mines, even if we pay the labor at their full wages, we save more, save a lot of money because excavation is so small that overhead cost, et cetera, are very high. And even the price of the coal that we get is not sufficient to meet the overhead cost. So it is basically quite a good proposition to close down these mines or to suspend the production from these mines.
The next question is from the line of Rahul Modi from ICICI Securities.
Sir, just wanted an update on the ESG report that you had mentioned that you're working on through a vendor. So when should that come out? And any thoughts on the ratings?
By February end, it should be out. KPMG is working on that. They are likely to submit draft report in a day or 2, might have submitted in last days, I don't know about that. But they had given that to -- before 15th of February, they will give the draft report. And maybe by the end of this month, they will give the final report.
The next question is from the line of Vishal Chandak from Emkay Global.
My questions were answered.
The last question is from the line of Saurabh Bansal from STAR Finvest.
Sir, my one question is that in financial year '19 and '20, the average realization per tonne of coal has been somewhere close to INR 1,530, INR 1,540. And in this year it has fallen down to INR 1,420 almost, a decline of 8%, 9%. So going forward for financial year '22/'23 and maybe at the longer-term period, what could be the average coal realization that one would expect?
To my mind, the coal realization should improve significantly from what we have achieved this year. Whether we achieve the INR 1,500-plus that we achieved that year before, it's difficult to say. It will depend how much demand is there because most of this increase takes place because of the premium that we get in e-auction. We have improved the e-auction quantity. Quantity wise, it has improved more than 60%. But still, the realization was in the range of more than 40% premium that we got in the last year, and this year it is 16%. So the difference is basically coming out because of that. But I'm quite hopeful whatever loss we suffered because of reduced -- reduction in the price -- this average realization, we'll make through higher production cost -- higher production -- higher sales of the coal and secondly, reduction in the -- our own cost of the production.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Rahul Modi from ICICI Securities for closing comments.
Thank you very much, everyone, and special thanks to Mr. Agrawal for giving so much time and explaining each and every detail about the progress in the company. Thank you very much, sir, once again.
Thank you, Rahul, a lot for organizing this con call, and thank you all the people for attending and hearing me out. Thank you very much. Thanks a lot.
Thank you very much, sir.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.