Coal India (Q4 FY14)

Coal India's revenue was flat on a yoy to Rs200bn, marginally higher than our estimate.

May 31, 2014 07:05 IST India Infoline News Service

CMP Rs374, Target Rs422, Upside 12.8%

 

  • Topline of Rs200bn was marginally above our estimate on the back of better than expected FSA realisations

  • Blended realisations were higher by 6.7% qoq to Rs1,542/ton

  • Coal production and dispatches were flat on a yoy basis and were also inline with our estimate

  • Operating profit was impacted by a provision of Rs8.8bn due to settlement of pending litigation with NTPC over quality of coal

  • A sharp jump in overburden costs also led to 16.5% yoy decline in operating profit to Rs51.1bn

  • Coal India is expected to be a major beneficiary of the new Government's focus on fuel security; Maintain BUY with a revised price target of Rs422

Result table
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 199,980 199,046 0.5 169,281 18.1
Inc/(dec) in inventory 8,493 8,643 (1.7) 79 -
Material costs (22,105) (20,247) 9.2 (17,588) 25.7
Personnel costs (70,027) (74,693) (6.2) (69,799) 0.3
Contractual expenses (21,482) (19,903) 7.9 (18,016) 19.2
Overburden removal (15,094) (8,880) 70.0 (7,111) 112.3
Other overheads (28,689) (22,776) 26.0 (15,810) 81.5
Operating profit 51,076 61,191 (16.5) 41,036 24.5
OPM (%) 25.5 30.7 -520 bps 24.2 130 bps
Depreciation (5,841) (4,698) 24.3 (4,417) 32.2
Interest (330) (127) 159.1 (96) 241.9
Other income 23,844 22,065 8.1 21,825 9.2
PBT 68,750 78,431 (12.3) 58,348 17.8
Tax (24,674) (24,508) 0.7 (19,297) 27.9
Effective tax rate (%) 35.9 31.2 33.1
Adjusted PAT 44,075 53,923 (18.3) 39,051 12.9
Adj. PAT margin (%) 22.0 27.1 -505 bps 23.1 -103 bps
Extra ordinary items 267 216 23.4 (111) -
Reported PAT 44,342 54,139 (18.1) 38,940 13.9
Ann. EPS (Rs) 27.9 34.1   (18.3) 24.7   12.9
Source: Company, India Infoline Research

Strong FSA realisations lead to a outperformance in topline

Coal India's revenue was flat on a yoy to Rs200bn, marginally higher than our estimate. Blended realisations were marginally higher than our estimate as the impact of lower incentives was offset by stronger FSA realisations. Average realizations for the company increased by 0.6% yoy to Rs1,542/ton due to a 3.9% yoy increase in FSA prices. FSA prices improved on a qoq basis by 4.7% due to recovery of mix. E-auction prices declined on a qoq basis by 4.2%, which was a negative surprise for us. We were expecting e-auction prices to be higher qoq. The upward movement in washed coal prices continued for the second consecutive quarter at Rs2,545, up by 4.7% qoq and 12.4% yoy. Coal offtake was flat yoy at 129.7mn tons due to lower demand from few states. Production too was flat during the quarter at 143mn tons. Year end incentives stood at Rs8bn, lower than our estimate of Rs10bn.


Sales analysis
Q4 FY14  Q4 FY13 % yoy Q3 FY14 % qoq
Sales (mn tons) 129.7 129.9 (0.1) 117.2 10.7
FSA 109.1 109.5 (0.4) 97.6 11.8
E-auction 16.8 14.9 12.4 15.1 10.6
Washed coal 3.0 3.6 (16.5) 3.4 (9.6)
Realisation (Rs/ton) 1,542 1,532 0.6 1,444 6.7
FSA 1,334 1,284 3.9 1,275 4.7
E-auction 2,139 2,307 (7.3) 2,232 (4.2)
Washed coal 2,545 2,264 12.4 2,430 4.7
Source: Company, India Infoline Research

Operating profit impacted due to jump in overburden costs and provisioning of dues from NTPC

Coal India reported a 16.5% decline in operating profit largely on account of jump in overburden expenses and provisioning related to dues from NTPC. On the basis of the settlement formula and pending final reconcillation/settlement of all the subsidiaries of CIL with NTPC, provision/write off of Rs8.76bn has been made. The Government of India has advised both the parties on the dispute over the grade of coal supplied to go for third party sampling. Operating profit was also impacted by the jump in overburden removal charges during the quarter. Due to the above two items, EBIDTA/ton for the quarter stood at Rs394/ton, lower than our estimate of Rs403. The impact of the jump in two cost items was marginally offset by higher than expected realisations.


Performance analysis
Q3 FY14 Q3 FY13 % yoy Q2 FY14 % qoq
Production (mn tons) 143.0 143.3   (0.2) 118.7   20.5
Dispatches (mn tons) 129.7 129.9    (0.1) 117.2   10.7
Realisation (Rs/ton) 1,542 1,532   0.6 1,444   6.7
Costs/ton (Rs/ton) 1,148 1,061   8.2 1,094   4.9
EBIDTA/ton (Rs/ton) 394 471   (16.4) 350   12.5
Source: Company, India Infoline Research

Earnings growth to resume from FY15E

We believe Coal India would be a major beneficiary of the new Government's focus on fuel security. The Government is strongly ensuring a smooth Centre-State administrative coordination to facilitate time-bound project clearances (environment/forest clearances). It is also planning to setup key rail projects (particularly the trunk rail lines in Chhattisgarh, Jharkhand and Odisha) for transportation of coal. Over the last one quarter, Coal India has managed to get 16 out of the total 20 projects pending with the Ministry of Environment and Forests for environment clearance as on December 30, 2013. The capacity addition would add 160mn tons to the company's annual capacity. The above would boost volume-led earnings growth prospects and bolster a longer term investment case in CIL. Realisations under e-auction sales and washed coal sales are near their bottom, and any increase in global coal prices would lead to higher realisations for CIL. The price hikes indicates the company's ability to pass on the increased costs to maintain profitability. Earnings are expected to improve FY15 onwards on the back of higher volumes, marginal increase in e-auction prices and price hikes taken by the company during the year. Any change in policies expected from the new regime would lead to re-rating of the stock. We maintain our BUY recommendation on the stock with a price target of Rs422.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 683,027 688,100 751,538 828,314
yoy growth (%) 9.4 0.7 9.2 10.2
Operating profit 180,836 159,631 197,984 242,219
OPM (%) 26.5 23.2 26.3 29.2
Pre-exceptional PAT 173,495 151,102 181,384 215,821
Reported PAT 173,564 151,116 181,384 215,821
yoy growth (%) 17.4 (12.9) 20.0 19.0
         
EPS (Rs) 27.5 23.9 28.7 34.2
P/E (x) 13.5 15.5 12.9 10.8
Price/Book (x) 4.8 5.5 4.7 4.0
EV/EBITDA (x) 9.5 11.4 8.8 6.9
RoE (%) 39.0 33.3 39.4 39.8
RoCE (%) 54.7 49.7 58.7 59.5
Source: Company, India Infoline Research

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