ADANI AIMS TO BEGIN MINING AUSTRALIAN COAL IN 2020

The government’s aim of reducing coal import and improving domestic production could upset the plan of Adani Enterprises, one of the country’s largest importers of the fuel.

Some early signs are already showing. Analysts are also sceptical of the company’s mining and trading targets for the year 2020.

Part of the Adani Group’s ‘Year 2020’ vision is to achieve a mining and trading volume of 200 million tonnes by then. These were set when the government had not declared an intention to cut import and Coal India, the state-owned near monopolistic producer in the country, was lagging.

There has since been a change, with a ramp-up of volumes at Coal India, in turn reducing the country’s import. India is expected to import 160.2 million tonnes (mt) in the current financial year (April 2016-March 2017), down 20 per cent from a year before.

According to data in the company’s presentations and annual reports, its coal trading volume for 2015-2016 was 78 mt. The management expects 80 mt this financial year. Some analysts do not see this number rising significantly any time soon. “The next one to two years’ volumes would be muted, as a lot of people are switching to domestic coal, as it looks cheaper. There is no recovery in sight for the short term,” said an analyst from a domestic brokerage, who did not wish to be identified. Adani has been doing added services to certain clients in coal trading which it was earlier not providing. This, it says, has helped it to hold on to market share.

"Compared to the situation 12 months ago where the scenario was negative, to say the least, I think prices of commodities have firmed up. Therefore, demand has stabilised and we believe that at least the current level of operations will continue, with some marginal growth, given our standing in the market,” Ameet Desai, executive director at Adani Enterprises, told analysts in the conference call on the results for the December quarter.

Not all agree. “There was a decline in FY16 and a similar trend is likely in the current financial year, mostly due to Coal India’s increased production,” said a second analyst, on condition of anonymity.

An official from Adani Group, who spoke on condition of anonymity, said: “When prices in the international markets had risen to $80-90 a tonne, some consumers did shift to domestic coal in the past year. However, with the fall in the international market, many of those consumers have again shifted back to imported coal.”

The official added that sales to state electricity boards and thermal power giant NTPC had fallen.

However, Adani had diversified its portfolio in the past couple of years and was not so dependent on state entities. It had raised the focus on private companies, where it had increased its market share.

“The 200 mt target will be difficult. If the Australian mine project starts, the situation might change,” said the first analyst quoted earlier. Phase-I of Adani’s Carmichael mine project targets production of 25 mt a year by 2020-21.

The Adani official quoted earlier said, “We have already started exploring domestic coal trading and are very confident that the ‘Urjamala’ initiative under the ‘Sagarmala’ mission will pick up in the coming years. This might help us achieve the target a year in advance.”

The company’s financial performance might see some impact due to the change in coal dynamics. “Coal trading will definitely impact on the top line numbers in the coming financial years. The mine development and operations business will be a saving grace at the bottom line,” said the second analyst.

Some remain hopeful that diversification in other markets would help coal trading companies ride the tide. “Diversification across other markets beyond India is now the mainstay for these companies. Further, while enhanced Coal India production has boosted supply to regulated sectors, strong demand from non-regulated sectors continues for coal traders and importers,” said Kameswara Rao, partner with consultancy PwC.

The Adani official says the group is aiming at developing of markets in South and Southeast Asia and in West Asia.