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The Economic Times has reported that Coal India has revised its production targets to 440mt
/446mt for FY11/FY12. This is a cut of 4% and 8% respectively from its earlier targets. The
company has attributed the target reduction to the pollution norm CEPI which impacts expansion
in existing as well as new mines.
Coal India production targets for FY11/12 cut 4%/8%
The Economic Times has reported that Coal India has informed the coal ministry that it will
produce 440mt of coal during FY2011 and 446mt during FY2012. This is a significant
reduction of 4% and 8% from the earlier production targets of 461mt and 486mt for FY11/12
respectively.
Growth impacted by CEPI, which restricts mining expansion
The company has attributed the target reduction to the Composite Environment Pollution
Index (CEPI) which affects expansion of existing as well as new mines. The Ministry of
Environment and Forest (MoEF) had issued a notice to coal companies last year that no
expansion would be allowed in areas with CEPI scores of greater than 70, till September
2010. The deadline was subsequently extended till March 2011. The index is calculated
based on the level of toxicity in the air. Almost all the mines of Coal India are impacted by
CEPI.
Volumes have been falling behind target all year
Coal India's production year-till-date has been falling behind the target and the target
reductions do not come as a surprise, though the 40mt reduction in FY12 target was perhaps
steeper than expected. It's production output till November 2010 was 258mt against targeted
production of 282mt. Production growth yoy has been only about 1%.
Off-take too continues to be impacted by shortage of rakes
Off-take too at 269mt was below target of 297mt (till November-end 2010). Off-take continues
to be impacted by shortage of railway rakes, though they have managed to reduce inventory
by 15mt from the FY2010 levels of 63mt.
Revised production targets in-line with our estimates
The revised targets of Coal India of 440mt and 446mt for FY11/12 compare with our estimate
of 441mt and 461mt. We have assumed a production volume growth rate of 2.3%/4.4%/4%
for FY11/12/13.
Earnings sensitivity to volumes
We estimate a decrease of 3.3% to FY12F earnings for each 1% reduction in volumes.
Incremental volumes are crucial as the company has a high proportion of fixed costs.
We have a Sell rating on Coal India with target price of Rs265.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
The Economic Times has reported that Coal India has revised its production targets to 440mt
/446mt for FY11/FY12. This is a cut of 4% and 8% respectively from its earlier targets. The
company has attributed the target reduction to the pollution norm CEPI which impacts expansion
in existing as well as new mines.
Coal India production targets for FY11/12 cut 4%/8%
The Economic Times has reported that Coal India has informed the coal ministry that it will
produce 440mt of coal during FY2011 and 446mt during FY2012. This is a significant
reduction of 4% and 8% from the earlier production targets of 461mt and 486mt for FY11/12
respectively.
Growth impacted by CEPI, which restricts mining expansion
The company has attributed the target reduction to the Composite Environment Pollution
Index (CEPI) which affects expansion of existing as well as new mines. The Ministry of
Environment and Forest (MoEF) had issued a notice to coal companies last year that no
expansion would be allowed in areas with CEPI scores of greater than 70, till September
2010. The deadline was subsequently extended till March 2011. The index is calculated
based on the level of toxicity in the air. Almost all the mines of Coal India are impacted by
CEPI.
Volumes have been falling behind target all year
Coal India's production year-till-date has been falling behind the target and the target
reductions do not come as a surprise, though the 40mt reduction in FY12 target was perhaps
steeper than expected. It's production output till November 2010 was 258mt against targeted
production of 282mt. Production growth yoy has been only about 1%.
Off-take too continues to be impacted by shortage of rakes
Off-take too at 269mt was below target of 297mt (till November-end 2010). Off-take continues
to be impacted by shortage of railway rakes, though they have managed to reduce inventory
by 15mt from the FY2010 levels of 63mt.
Revised production targets in-line with our estimates
The revised targets of Coal India of 440mt and 446mt for FY11/12 compare with our estimate
of 441mt and 461mt. We have assumed a production volume growth rate of 2.3%/4.4%/4%
for FY11/12/13.
Earnings sensitivity to volumes
We estimate a decrease of 3.3% to FY12F earnings for each 1% reduction in volumes.
Incremental volumes are crucial as the company has a high proportion of fixed costs.
We have a Sell rating on Coal India with target price of Rs265.
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