CMP Rs322, Target Rs350, Upside 8.7%
Topline of Rs194bn was quite higher than our estimate of Rs175bn on the back of strong realisations
Realisations for the quarter jumped 13.6% qoq to Rs1,581/ton due to higher proportion of e-auction sales and impact of the GCV based pricing
Offtake during the quarter increased by 6.5% yoy to 123mn tons, inline with our estimates
Employee costs surged 61.3% qoq to Rs90.7bn on account of higher provisioning for the wage increase
EBIDTA/ton decreased from Rs412 in Q3 FY12 and Rs451 in Q4 FY11 to Rs308, quite lower than our estimate of Rs470
The impact of higher realizations on margins was offset by a jump in costs, largely due to employee costs, overburden removal adjustment and contractual costs
Maintain our Market Performer rating with a 9-month price target of Rs350
Strong realizations led to an outperformance in topline
Q4 FY12 revenue of Rs194bn was 29.3% higher on a yoy basis and 26.5% on a qoq basis. It was even higher than our estimate of Rs174.5bn due to a jump in realizations and Rs10bn received on account of incentives booked in Q4 FY12. We had estimated realizations to increase from Rs1,380/ton in Q3 FY12 to Rs1,427/ton on the back of higher e-auction sales and impact of change to GCV based pricing. CIL managed to report realizations of Rs1,581/ton during the quarter, which was quite higher than our estimate. Coal off take during the quarter was higher by 6.5% on a yoy basis and 11.4% qoq. Production for the quarter was 9.7% higher yoy. E-auction prices remained constant on a qoq basis and that of FSA increased 19.4% qoq. Prices of washed coal too were 16% higher qoq.
EBIDTA/ton shrinks to Rs308 from Rs412 in Q3 FY12
CIL in Q4 FY12 reported an operating profit of Rs37.8bn, which was lower by 27.1% yoy and 16.7% qoq. The jump in costs led to a margin squeeze of 15.1ppts yoy and 10.1ppts qoq to 19.5%, lowest since the time of listing. The underperformance in margins was largely due to a jump in costs of production, led by employee and overburden removal provision. In Q3 FY12, CIL provided ~Rs7.7bn towards wage arrears, which in management's view would have covered ~24% increase in wage cost. However, the wage negotiation was completed with an increase of 25% in basic pay, 4% in perks (as % of basic) and 2% in HRA (% of basis), leading to ~31% increase in wage cost. As a result, employee provisioning was quite higher during the quarter, leading to a huge jump in employee costs. The increase in employee wages led to a one-time impact of actuarial gratuity provisioning to the tune of Rs25bn. Employee costs for the quarter jumped 61.3% higher on a qoq basis to Rs90.7bn. Contractual expenses per ton of coal increased by 13.8% qoq and that of stores & spares per ton of coal jumped 10.5% qoq. Overburden removal provision which was in the declining trend over the last three quarters soared 125% qoq. All major costs except power & fuel costs were higher on a qoq basis. As a result, total costs per ton of coal increased from Rs980 in Q3 FY12 and Rs852 in Q4 FY11 to Rs1,273. EBITDA/ton shrunk to Rs308 from Rs412 in Q3 FY12 and Rs451 in Q4 FY11.
Coal India has traded sideways over the last one quarter as concerns over FSA signings continue to remain an overhang. The issues related to wage negotiations are behind us and would reduce the uncertainty over the stock in the near term. As Coal India passes through a phase wherein key policy developments relating to the power sectors are in the offing, the actual impact of which remains uncertain. We maintain our Market Performer rating on the stock as we believe that the company would not be able to pass the complete increase in employee costs by raising prices for coal meant for the power sector. 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 Rs350.