COAL INDIA – INDEED A BLACK MARK ON INDIAN PSUs

By Ruma Dubey

How can Coal India be so inefficient?

That’s the frustrating question which comes to mind as we see its dismal performance for Q4FY18.

Time and again, Coal India Ltd (CIL), a PSU Maharatna misses production as well as earnings estimate. How does it manage to do this quarter after quarter, year after year. How come all the worries we see unleashed in the Indian corporate sector is mainly on account of the inefficiencies of the PSUs? Take the banks or airlines or now coal, why are things so messed up?

CIL reported a 52% (YoY) drop in net profit for Q4FY18 on a 16% rise in revenue at Rs.26,909 crore. In fact the topline beat all analyst estimates. Yet, the profit dropped.  EBITDA fell 94% at Rs.196 crore and margins have come down below 1% to 0.72% v/s 13.92%.

The blame lay fair and square on the employee cost. This white elephant employs over 3,10,000 employees directly. There was an 80% rise in staff benefit cost at a staggering Rs.16,654 crore, which means it ate away 62% of the revenue earned. Based on just common sense, does this model make any sense where the employees who are meant to boost the earnings of the company are actually eating it away faster?

CIL has a monopoly and yet, it is in this state. It thus makes every perception we have of a PSU seem so true – inflexible, unwieldy, adamant labour unions, resettlement and rehabilitation, antiquated technology, where crony capitalism and politics rules business sense. Yes, it provides employment to over 3 lakh people but does that make sense for a for-profit organization when the cost of these employees outstrips the advantages.

BSNL or even MTNL, Air India, all are standing apostles of all that is wrong with PSUs. Bharat Coking Coal, CIL’s subsidiary, learnt its lessons – it could trim its labour force and that alone helped it comes back to profits from BIFR. But the labour unions are so strong that it is quite unthinkable of doing that at CIL.

So if labour trimming is not an option, it would then make sense to improve efficiency. Apart from antiquated technology and poor skill sets, non availability of railway rakes is also a concern. CIL has plans to have its own network of railway corridors and rakes which it feels will help in reducing its dependency on railways for transporting coal. Besides upping its production, it needs to focus on building its own logistical capability.

The only good news here – Coal India is aware that it needs to perform and it is at least taking some steps to improve. But that cannot remain merely on appear; it needs to be implemented and that too fast.

CIL is a jewel in the crown of PSUs. And its sparkle is lost and clouded. Unless it is polished back to life, like other PSUs in the past, it too will die a death or be on a death bed, waiting for resurrection like Air India.

There is no easy way out but a way needs to be worked out soon – it employees is the biggest burden, govt needs to concentrate on either reducing it or making them more efficient, where they help produce more than what they collectively take away!