Coal India Ltd (Q1 FY14)

Maintain BUY with a revised 9-month price target of Rs324.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs255, Target Rs324, Upside 27.1%

  • Revenue of Rs164bn was lower than our estimate due to weak e-auction realisations
  • Offtake during the quarter increased by 2.1% yoy to 115mn tons; Production was flat at 103mn tons
  • Realisations for the quarter were 2.2% lower on a yoy basis at Rs1,428/ton due to 16.5% yoy decline in e-auction prices. The decline in e-auction sales was higher than our estimate.
  • EBIDTA/ton of Rs343 was inline with our estimate, but lower by 19,4% yoy due to higher diesel prices and an increase in wage cost
  • Maintain BUY with a revised 9-month price target of Rs324. 
Result table
(Rs mn) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Net sales 164,724 165,006 (0.2) 199,046 (17.2)
Inc/(dec) in inventory (3,749) (4,383) (14.5) 8,643 (143.4)
Material costs (13,768) (12,334) 11.6 (20,247) (32.0)
Personnel costs (68,128) (61,301) 11.1 (74,693) (8.8)
Contractual expenses (14,842) (12,341) 20.3 (19,903) (25.4)
Overburden removal (5,971) (7,326) (18.5) (8,880) (32.8)
Other overheads (18,687) (19,175) (2.5) (22,776) (18.0)
Operating profit 39,580 48,146 (17.8) 61,191 (35.3)
OPM (%) 24.0 29.2 (515) bps 30.7 (671) bps
Depreciation (4,757) (5,356) (11.2) (4,698) 1.2
Interest (74) (126) (41.0) (127) (41.5)
Other income 22,196 20,714 7.2 22,065 0.6
PBT 56,945 63,378 (10.2) 78,431 (27.4)
Tax (19,585) (18,582) 5.4 (24,508) (20.1)
Effective tax rate (%) 34.4 29.3
Adjusted PAT 37,360 44,796 (16.6) 53,923 (30.7)
Adj. PAT margin (%) 22.7 27.1 (447) bps 27.1 (441) bps
Extra ordinary items 50 (103) - 216 (76.8)
Reported PAT 37,410 44,693 (16.3) 54,139 (30.9)
Ann. EPS (Rs) 23.7 28.4   (16.6) 34.1   (30.7)
Source: Company, India Infoline Research

Lower realizations lead to a miss in topline
Coal India’s revenue was marginally lower by 0.2% yoy to Rs165n which was lower than our estimate of Rs170bn. The underperformance in topline was due to weak e-auction sales realizations. Average realizations for the company declined by 2.2% yoy to Rs1,428/ton due to a 16.5% yoy drop in e-acution sales prices. E-auction realizations was quite lower than our estimate of Rs2,300/ton, a reflection of the weak market conditions for the power and the metal producers. Coal offtake increased 2.1% yoy to 115mn tons on account of increased availability of rakes. The increase in dispatched was largely to power producers. Sales to power companies increased by 2.75mn tons to 97mn tons for the quarter. Production during the quarter was marginally lower by 0.2% yoy to 105mn tons. in Q1 FY14 and are lower than the target production and dispatch by 4% and 5%. Coal production was hit due to restriction on movement of explosives, high temperature in May and early arrival of monsoons.

Coal production in May fell 2.8% yoy on account of reduced working hours imposed by the Odisha state government due to a heat wave during the month. Both e-auction and washed coal prices declined on both, qoq and yoy, due to a decline in global coal prices and subdued demand from the consumers.

EBIDTA/ton declined due to high diesel prices

Coal India reported a 17.8% decline in operating profit largely on account of lower realizations and an increase in diesel prices. OPM for the quarter shrunk by 515bps yoy to 24%. Operating costs per ton of coal increased 4.9% yoy and 2.2% qoq to Rs1,085/ton on account of high diesel prices and an increase in staff costs. Stores and spares costs jumped 11.6% yoy due to an increase in diesel prices. The management said that this quarter showed the full impact of the increase in diesel prices for bulk consumers. Contractual expenses too increased by Rs25bn yoy and were 20.3% yoy due to higher diesel costs and an increase in contract prices. EBIDTA/ton for the quarter was Rs343/ton, lower by 19.4% yoy and 27.2% qoq. However, it was inline with our estimate.

Performance analysis

Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Production (mn tons) 102.9 102.5   0.4 143.3   (28.2)
Dispatches (mn tons) 115.4 113.0   2.1 129.9   (11.2)
Realisation (Rs/ton) 1,428 1,460   (2.2) 1,532   (6.8)
Costs/ton (Rs/ton) 1,085 1,034   4.9 1,061   2.2
EBIDTA/ton (Rs/ton) 343 426   (19.4) 471   (27.2)
Source: Company, India Infoline Research

Underperformance in PAT increased by higher tax rate
Coal India’s bottomline of Rs37.4bn was lower than our estimate of Rs39.8bn. The underperformance was due to higher tax rate of 34.4%. We believe this would rationalize going ahead.

Recent correction an opportunity to enter; Maintain BUY
In H2 FY13, Coal India has witnessed a decline in its e-auction and washed coal prices due to a slide in global coal prices. We expected expansion in Coal India’s margins on the back of higher market linked sales and prices. However, with subdued global coal prices we lower our price estimates for market linked sales from Coal India. We believe that the company would not be able to increase its FSA prices in the near term. We estimate volume growth to be below the management guidance in FY14 due to miss in target in the first four months of the year and issues related to transportation of coal. We also lower our average realisations on the back of weak e-auction prices. However, the recent correction provides a good entry level for long term investors. We maintain our BUY recommendation with a revised 9-month price target of Rs324.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 624,149 683,027 716,011 755,571
yoy growth (%) 24.3 9.4 4.8 5.5
Operating profit 156,672 180,836 190,961 208,890
OPM (%) 25.1 26.5 26.7 27.6
Pre-exceptional PAT 146,965 173,495 179,342 195,778
Reported PAT 147,876 173,564 179,342 195,778
yoy growth (%)

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