CMP Rs348, Target Rs356, Upside 2.4%
Lower realisations led to an underperformance in topline
Q1 FY13 revenue of Rs165bn was 13.8% higher on a yoy basis, but lower by 15% on a qoq basis. It was lower than our estimate of Rs170bn due to lower realisations. We had estimated realisations to decrease from Rs1,581/ton in Q4 FY12 to Rs1,460/ton as pervious quarter realisation was aided by incentives worth Rs10bn. On a yoy basis, realisations were up by 7%, aided by higher prices of both FSA and e-auction sales. Coal off take during the quarter was higher by 6.3% on a yoy basis. Production for the quarter too was higher by 6.7% on a yoy basis. E-auction prices were lower on a qoq basis and that of FSA were higher on a qoq due to the shift to GCV based pricing.
EBIDTA/ton rises to Rs426 from Rs308 in Q4 FY12
CIL in Q4 FY12 reported an operating profit of Rs48.1bn, which was higher by 27.2% yoy and flat on a qoq basis. After registering a sharp decline in margins in Q4 FY12, CIL managed to increase its operating margin by 9.7ppts qoq. However, on a yoy basis it declined by 4.1ppts. The expansion in margins on a qoq basis was led by a decrease in production costs. Production costs per ton declined sharply from Rs1,273 in Q4 FY12 to Rs1,034 led by lower employee costs and a sharp decline in per ton costs of stores and spares and contractual expenses. In the previous quarter employee costs had ballooned due to wage provisioning. Employee costs for the quarter declined 32.4% on a qoq basis to Rs61.3bn. Contractual expenses per ton of coal decreased by 15.2% qoq and that of stores & spares per ton of coal declined by 22.4% qoq. All major costs except power & fuel costs were lower on a qoq basis. As a result, EBITDA/ton expanded to Rs426 from Rs308 in Q4 FY12, but was lower than Rs453 in Q1 FY12.
Maintain Market Performer rating
Coal India over the past one quarter has overcome many hurdles ranging from employee wage revision, FSA signing and penalty clause over non-fulfilment of FSAs signed. The board would meet again to decide on the price pooling mechanism for the power producers. It has agreed to pay penalties for failing to provide sufficient supplies to new Indian power projects that range from 1.5% to 40% of a shortfall, depending on the level of default. It has kept the penalty trigger level at 80% (65% domestic and 15% imported). On account of the lack of positive triggers in the near term, we maintain our Market Performer rating on the stock with a 9-month price target of Rs356.