Coal India Limited

Ratings Reaffirmed

 

Rating Action

Total Bank Loan Facilities Rated	Rs.9550 Crore
Long Term Rating	CRISIL AAA/Stable (Reaffirmed)
Short Term Rating	CRISIL A1+ (Reaffirmed)

 

Corporate Credit Rating	CCR AAA/Stable (Renewed and Reaffirmed)
Rs.150 Crore Short Term Debt	CRISIL A1+ (Reaffirmed)

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has renewed and reaffirmed its 'CCR AAA/Stable' corporate credit rating on Coal India Limited (CIL) and reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the company's bank facilities and short-term debt.

 

The ratings continue to reflect CIL’s strategic role in helping India meet its energy requirement, its near-monopoly status, healthy profitability and strong financial risk profile. These strengths are partially offset by susceptibility to regulatory risks and socio-political factors, and constraints in the coal distribution and evacuation infrastructure in India.

Analytical Approach

CIL coordinates the operations, pricing and treasury functions of its subsidiaries: Bharat Coking Coal Ltd, Central Coalfields Ltd, Eastern Coalfields Ltd, Mahanadi Coalfields Ltd, Northern Coalfields Ltd, South Eastern Coalfields Ltd, Western Coalfields Ltd, Central Mine Planning & Design Institute Ltd, and Coal India Africana Ltd. Hence, CRISIL Ratings has combined the business and financial risk profiles of CIL and its subsidiaries to arrive at the ratings. CIL and all its subsidiaries are together referred as CIL. 

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance in meeting India’s energy requirement

Given India's abundant coal reserves and non-availability of other sustainable sources of fuel, coal will continue to play a dominant role in meeting the country’s energy requirement. CIL accounts for around 83% of domestic coal production in fiscal 2021. Total production by the company and offtake during the fiscal were 596 and 574 million tonne, respectively (602 and 582 million tonne, respectively, in the previous fiscal) out of which 77% of its supplies were to the power sector.

 

• Continued near-monopoly status

CIL possesses 48% of India’s proven reserves in its command area and accounts for the bulk of the domestic coal production. While the government has already started auctions for the commercial mining by private sector players (completed the auctions for the mines under tranche-I in November 2020 and some of the mines under tranche-II), implementation is expected to take longer. Hence, CIL will continue to enjoy its monopoly over the medium term.

 

• Healthy profitability

Favourable geological conditions and improving productivity in terms of output per man-shift through increased outsourcing and capital expenditure (capex) kept the operating margin healthy over the past decade. Application of coal cess from December 2017 and increase in price in January 2018 resulted in higher profitability in fiscal 2019. However, profitability was impacted in fiscal 2020 by lower offtake (especially by the power sector) and depressed e-auction premiums. Profitability was also moderately impacted during fiscal 2021 due to lower offtake especially by the coal and steel sector driven by the Covid-19 pandemic. Production and offtake both declined by 1% during fiscal 2021, driven by a 1.2% drop in demand from the power sector. Operating profit before depreciation, interest and taxes (OPBDIT) margin was 21.0% in fiscal 2021 compared with 23.4% during the previous fiscal.

 

However, offtake increased by 33% in the first quarter of fiscal 2022, driven by power demand recovery. Hence, the OPBDIT margin improved to 19.2% from 16.5% in the corresponding period of the previous fiscal. With expected improvement in the power demand, volume and profitability should remain healthy over the medium term.

 

• Strong financial risk profile

The financial risk profile is supported by low debt and high networth. Gearing remained strong at 0.16 time as on March 31, 2021 (0.20 a year earlier) despite increase in working capital intensity during the year.

 

Liquidity remains robust with net cash and cash equivalent[1] of around Rs 15,000 crore as on March 31, 2021 (around Rs 22,000 crore). Net cash and cash equivalents reduced during fiscal 2021 since CIL has allowed usance letters of credit (LCs) as a form of payment for coal supplies, leading to increase in receivables by around Rs 5,000 crore during the fiscal. However, the receivables eased during the current fiscal by around Rs 3,000 crore till August 2021 and this along with increase in offtake led to net cash balance rising over Rs 20,000 crore. Net cash and cash equivalents should remain above Rs 20,000 crore by the end of fiscal 2022.

 

CIL will undertake capex of around Rs 60,000 crore over the three fiscals through 2024, to increase mining and coal washing capacity and improve rail infrastructure. The company plans to set up solar power and thermal power plants, and revive fertiliser plants. While the investments in these sectors have been low till now since the projects are in the preliminary stages, it may increase with the progress of the projects.

 

Despite the proposed capex, and expected continuation of the dividends, the financial and liquidity risk profiles will remain strong over the medium term, backed by robust capital structure, sizeable liquid surplus and healthy cash accrual. Any larger-than-expected capex, adversely impacting cash position, will remain a key monitorable.

 

Weaknesses:

• Exposure to socio-political and regulatory risks

Despite improving productivity, CIL’s coal output has been constrained by delays in obtaining environmental and forest approvals, especially in greenfield projects, and lack of adequate logistic infrastructure. Flexibility is also restricted by socio-political factors, which mandate development activities in coal mining areas, thereby impacting the cost structure. CIL plays an important role in ensuring the country’s energy security, and domestic coal has a discounted price compared to imported coal. Private players entering the business under the commercial mining route will take time to start production, thus keeping CIL’s near-monopoly status and strategic importance to the Government of India. Operational flexibility has improved in the past few years with environmental and forest clearances enabling faster implementation of stuck projects for coal evacuation. Any change in the regulatory regime or socio-political factors will impact the business.

 

• Constraints in coal distribution and evacuation infrastructure

In the past, volume was hit by shortage of adequate rakes for transportation of coal and lack of last-mile connectivity in pitheads. Nonetheless, there has been progress in implementation of previously stuck projects, with better coordination among stakeholders. Consequently, two critical rail links (Tori-Shivpur and Tori-Balumath) for transporting coal from CIL’s mines were commissioned in fiscal 2019. Subsequently, Phase-II of Mahanadi Coal Railway Ltd was completed in December 2020 and Phase-II of Korichapar- Dharamjaigarh railway section is undergoing a trial run. Furthermore, CIL is focussing on improving the rail infrastructure in Odisha, Jharkhand and Chhattisgarh with various projects in pipeline. Some of the rail projects remains very critical such as tripling of the Tori- Shivpur rail line that will increase the capacity to 3 times. Overall, these projects will ease evacuation constraints and increase the share of railways in transporting coal. Any delay in the completion of these links may impact the offtake.

[1] Net cash and cash equivalent is equal to cash and cash equivalent less total debt

Liquidity: Superior

Liquidity is backed by large total cash and cash equivalents of around Rs 27,000 crore (total cash & cash equivalent and net cash & cash equivalent were Rs 21,000 and Rs 15,000 crore, respectively, as of March) and unutilised fund-based working capital lines of Rs 3,254 crore as on August 2021 (Fund-based working capital limit of Rs 4,250 crore). The annual cash accrual, existing cash and cash equivalents and unutilised bank lines should be adequate for meeting the debt obligations, capex and incremental working capital requirement during fiscal 2022.

Outlook: Stable

CIL will maintain its position in the domestic coal industry, driven by strong capital structure and surplus liquidity.

Rating Sensitivity factors

Downward factors

• Any material adverse impact of changes in India's coal policy
• Significant weakening of financial and liquidity risk profiles
• Any divestment leading to substantial reduction of government shareholding

About the Company

CIL was incorporated in 1973 as Coal Mines Authority Ltd after the nationalisation of the coal sector. It was reconstituted as a formal holding company with the present name in November 1975. The company has eight wholly owned Indian subsidiaries: Bharat Coking Coal Ltd, Central Coalfields Ltd, Eastern Coalfields Ltd, Western Coalfields Ltd, Northern Coalfields Ltd, Mahanadi Coalfields Ltd, South Eastern Coalfields Ltd, and Coal Mines Planning and Development Institute Ltd. It has a wholly owned subsidiary in Mozambique, Coal India Africana Ltd.

 

CIL was conferred the Maharatna status by the Indian government in April 2011. The status provides operational and financial autonomy. Additionally, seven of its nine wholly owned subsidiaries have been accorded the Miniratna status, leading to decentralisation of operations and decision-making. In October 2010, the government divested 10% stake in CIL for Rs 15,200 crore through an initial public offering (IPO). After the IPO, CIL was listed on the domestic stock exchanges. Over the years, the government has divested stake through offer for sale, by way of placement of shares in Central Public Sector Exchange Traded Fund and buyback of shares through offer for sale. Government shareholding was 66.13% as on June 30, 2021.

 

In fiscal 2021 and the first five months of fiscal 2022, CIL produced 596 million and 209 million tonne of coal, respectively, against 602 million and 196 million tonne, respectively, in the corresponding period of the previous fiscal.

 

CIL had PAT of Rs 3,174 crore and total income of Rs 25,963 crore in the quarter through June 2021, compared with Rs 2,077 crore and Rs 19,272 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)*

As on/for the period ended March 31		2021	2020
Operating income	Rs crore	90,755	96,873
Profit after tax (PAT)	Rs crore	12,702	16,700
PAT margin	%	14.0	17.2
Adjusted debt/adjusted networth	Times	0.16	0.20
Interest coverage	Times	29.61	45.16

 * As per analytical adjustments made by CRISIL Ratings

Any other information: Not applicable

Annexure - Details of Instrument(s)

^Out of this, Rs 4,190 crore is outside the consortium non-fund-based limits

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Bharat Coking Coal Ltd	Fully consolidated	Strong financial and business linkages
Central Coalfields Ltd	Fully consolidated	Strong financial and business linkages
Eastern Coalfields Ltd	Fully consolidated	Strong financial and business linkages
Mahanadi Coalfields Ltd	Fully consolidated	Strong financial and business linkages
Northern Coalfields Ltd	Fully consolidated	Strong financial and business linkages
South Eastern Coalfields Ltd	Fully consolidated	Strong financial and business linkages
Western Coalfields Ltd	Fully consolidated	Strong financial and business linkages
Central Mine Planning & Design Institute Ltd	Fully consolidated	Strong financial and business linkages
Coal India Africana Ltd	Fully consolidated	Strong financial and business linkages