Coal India Ltd
(CIL) increased production by 15.7% yoy for the month of May 2018 to 47.1mn tonnes (92% of monthly target). This brings the total production for the period of Apr18-May18 to 91.99mn tonnes, an increase of 16.2% yoy (94% of production target). Offtake also rose 14% yoy for May 2018 to reach 52.86mn tonnes (91% of offtake target). Thus, offtake for Apr18-May18 stood at 103.8mn tonnes, an increase of 13.4% yoy (90% of offtake target).
The management of CIL had cited that the unavailability of rakes to transport coal was a key impediment to increasing offtake. Given that offtake for May 2018 rose 3.7% mom, it indicates that the situation has alleviated slightly. However, the fact that offtake for May 2018 stands at 91% of targeted offtake is a cause for concern. Depleted coal stock levels across the country are a key factor in low PLF for thermal plants across the country. As on 27 May 2018, 25 thermal plants across the country had either critical or super-critical coal stock levels.
In order to combat this shortage, the government has asked the Indian railways to prioritize shipment of coal. In addition, shipments of coal to power generators (especially PSU power generators) are being prioritized ahead of independent as well as captive power generators. This is a concern for power-intensive industries such as metals and cement.
Coal India is likely to see revenue CAGR of 10.1 over FY18-20E backed by a sharp rise in coal production in FY19-20E. EBITDA margins are likely to expand by 413bps over FY18-20E due to the higher levels of production. We expect this revenue growth to lead to PAT CAGR of 35.3% over FY18-20E with an EBITDA margin of 16.2% in FY20E. The stock is currently trading at 5.3x FY20E EV/EBITDA.
CIL holds a dominant market share in coal mining and produces 84% of the nation’s coal output. Coal production for the month of April 2018 stood at 44.8mn tonnes, an increase of 16.7% yoy. The production target for FY19 stands at 630mn tonnes. The Working Group on Coal and Lignite has stated that they plan to expand CIL's production to 908mn tonnes by FY20. The government made a ruling in February 2018 to allow private miners to engage in commercial coal mining. This move removes the monopoly status enjoyed by CIL and is a long-term negative for the company.