Fuelling Growth from Within: How BCCL’s Internal Accruals and Coal Washing Plans Could Redefine India’s Energy Economics

Bharat Cooking Coal Ltd (BCCL), a key subsidiary of Coal India Ltd, has decided to pursue its expansion and modernisation plans using internal cash accruals, even though its recent IPO was used to structure as a pure offer-for-sale (OFS) where proceeds went entirely to the parent company.

Under its five-year growth strategy, BCCL expects to generate annual profits of over ₹2,000 crore beginning in FY27. In addition to this, ₹400-₹500 crore in depreciation will result in the generation of roughly ₹2,500 crore of annual interest cash flows. With an estimated capital expenditure of about ₹1,000 crore per year, the company believes it can adequately fund planned expansion without external borrowing.

Coal Washing: A Major Margin Driver

A key pillar of the BCCL's strategy is to boost value realisation through coal washing. It is a process that cleans raw coals and yields higher-grade products. The company plans to nearly double washery capacity over the next 5 years from 13 million to 13.6 million tonnes.

BCCL executives highlighted that the combined realisation from one tonne of raw coal washing, power coal, and by-products can be nearly three times that of raw coal sales.

As per the BCCL's five-year plan, every year, 16 million tonnes of coal will pass through the washery. This will give rise to incremental profit of ₹1,200 - ₹1,500 per tonne, underscoring its potential to significantly lift margins.

Production Scale and Customer Diversification

BCCL currently produces about 40.5 million tonnes of coal per year and accounts for nearly 58.5% of India's domestic coking coal output, positioning it as a critical supplier to the steel sector.

According to Mukesh Agrawal, Director, Finance, Coal India, with higher output, the company has prioritised meeting the full coking coal requirements of Steel Authority of India Ltd. (SAIL). It also plans to increase supplies to private steel manufacturers through competitive auctions as production expands. Moreover, domestic sourcing also assists the customers in saving on logistics costs.

CMD Manoj Kumar Agarwal also said it's time to reduce customer concentration, noting that the top ten buyers are largely public sector steel and power companies that presently contribute over 80% of the total revenue. The management also expects higher output volumes and broader participation in auctions to gradually diversify the customer base and stabilise revenue streams.

Short-Term Earnings Pressure Seen as Temporary

During the first half of FY26, BCCL's EBITDA fell sharply compared to the same time last year. Management said this was due to unusual weather-related problems, not any problems with the way the company was run.

The business says that the Dhanbad area had about 2,200 mm of rain, which is almost double the long-term normal. This made it the wettest year in the last 50 years. The abnormally heavy rainfall made opencast mining very difficult. Also, a milder summer made coal demand weaker during the peak season, which hurt volumes even more.

Sanjay Kumar Singh of BCCL stated that starting next year, we expect production and offtake to return to normal.

CMD Manoj Kumar Agarwal said that the coal mining industry is a fixed-cost business with over 70% of expenses staying the same. Because of this, any drop in volume tends to have a disproportionate effect on profits. This only aggravates the impact of operational issues.

Diversification Beyond Coal

In its long term diversification strategy, BCCI is considering the mining of coal-bed methane (CBM) and renewable energy sources. One CBM project is underway at Moonidih, with the project expected to produce commercial-level methane within an 18-month time span. At the same time, the firm is adding more solar panels, which helps it reach its goals for energy efficiency and sustainability.

Final Outlook

BCCL's plan for development is based on self-funded expansion, producing washed coal with greater margins, being able to keep operations running smoothly, and carefully diversifying.

The corporation believes it can be profitable while meeting India's steel and energy needs in the medium to long term, since it makes a lot of money internally and focuses on increasing value rather than just volume.

Sources

Economic Times