Coal India Limited: Size does matter…says ICICI Sec

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Coal India Limited: Size does matter…

Coal India Limited (CIL), a Navratna PSU, is the largest coal producing
company in the world with a total coal production of ~445.9 million
tonnes (MT) in FY10. In terms of reserves also, it is the world’s largest
coal company with proven reserves of ~18.9 billion tonnes and
resources of ~64.3 billion tonnes. CIL has garnered Rs 46684.3 crore
and Rs 11940.3 crore as revenue for FY10 and Q1FY11, respectively,
while PAT (restated) was reported at Rs 9829.41 crore and Rs 2521.78
crore, respectively. EBITDA margin for the same period remained at
~22% and 26%, respectively. As on March 31, 2010, the company holds
cash reserves of Rs 39700 crore with net debt- equity ratio at 1.4.





􀂃 Largest producer and supplier of coal
Being the largest producer of coal, CIL contributes 80% of the
country’s total coal output. Open cast mines contribute 90% to CIL’s
total coal production. Though CIL virtually supplies its coal to all
relevant industries, 80% of the coal requirement by the country’s
power sector is met by CIL. At present (FY10), ~96.5% of the
company’s revenue is contributed by raw coal.
􀂃 Focus on beneficiation and margin expansion
CIL has been focusing on increasing its beneficiated coal capacity to
~111.1 MT by 2017 from ~13 MT in FY10. Currently, the cash cost
of production of coal from open cast mines is Rs 745/tonne (among
the lowest in the world) while the average selling price is Rs 1097/
tonne.
Concerns
Major concerns for the company are a) huge employee costs (~36%
of the revenue in FY10), b) current issues related to forest and
environment clearances for new mining projects that may delay the
projects, c) issues related to Naxalites and mafia in its major
operational area and d) infrastructure bottlenecks.
Valuations
At the higher IPO price band of Rs 245, CIL discounts its FY10 EPS (post
issue) and FY10 EV/EBITDA by 15.7x and 11.3x, respectively. On
EV/tonne (reserve), the stock is available at Rs 62.4 on FY10 basis.