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Coal India Limited -
Output targets cut due to CEPI norms
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Production targets lowered due to CEPI norms
CIL has cut output target to 440mt (460.5 earlier) for FY11 and to 447mt for FY12
as the environment ministry has extended the moratorium on expansions in areas,
with CEPI > 70 (Composite Environment Pollution Index) till March 2011 (earlier
August 2010). Around 39mt of FY12 output has been affected due to this. Group of
Ministers meeting was held to discuss coal supply issues. CIL expects the embargo
on a number of projects to be lifted which could lead to better growth in 2H12.
CIL proposes price hike to offset rising cost pressure
CIL has already started consultations with the government to raise prices to
offset wage cost hikes. It expects wage cost pressure to increase due to
increase in inflation-linked wage components including dearness allowance,
gratuity and leave encashment. Also, the next wage revision is due in June
2011. While there could be delays in the settlement, CIL will make provisions for
wage hikes in FY12. The e-auction premium has expanded in FY11. The
average e-auction premium over notified prices was ~83% in 9MFY11 (~60% in
FY10). The premium was ~90% in December. CIL expects e-auction mix to be
~12-12.5% in FY12 (11% in FY10). It is also exploring the option of forward
e-auction for the sale of coal for 12 months (on a rolling basis).
Beneficiation expansion to kick in post-FY14
CIL has awarded only two of the 20 coal washery projects. The remaining 18
washery projects (Including three in the final stages) are expected to be awarded
by the end of 2011. These projects are likely to kick in in phases from FY15
onwards. It expects around 80-85mt of coal to be washed in FY16.
Price objective basis & risk
Coal India Limited (XOXCF)
Our PO of Rs350 is set at our NPV estimate. Our NPV analysis assumes a
WACC of 13% and a terminal growth of 2%. At our PO Coal India would trade at
10.5x FY12E EBIDTA and 9.4x FY12E adjusted EBITDA (adjusted for OBR). We
have assumed coal volumes of 425mn tons in FY10, 451mn tons in FY12E. We
forecast volumes to grow at 5.1% CAGR over FY13-18E.
Stronger volume growth, higher realisations and lower costs pose upside risks to
our valuations. Downside risks to our valuations are slower pace of environmental
approvals, prohibition of coal mining in areas where CIL reserves are located,
sharper than expected increase in wage costs and inability to raise prices to pass
thru wage cost hikes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Limited -
Output targets cut due to CEPI norms
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Production targets lowered due to CEPI norms
CIL has cut output target to 440mt (460.5 earlier) for FY11 and to 447mt for FY12
as the environment ministry has extended the moratorium on expansions in areas,
with CEPI > 70 (Composite Environment Pollution Index) till March 2011 (earlier
August 2010). Around 39mt of FY12 output has been affected due to this. Group of
Ministers meeting was held to discuss coal supply issues. CIL expects the embargo
on a number of projects to be lifted which could lead to better growth in 2H12.
CIL proposes price hike to offset rising cost pressure
CIL has already started consultations with the government to raise prices to
offset wage cost hikes. It expects wage cost pressure to increase due to
increase in inflation-linked wage components including dearness allowance,
gratuity and leave encashment. Also, the next wage revision is due in June
2011. While there could be delays in the settlement, CIL will make provisions for
wage hikes in FY12. The e-auction premium has expanded in FY11. The
average e-auction premium over notified prices was ~83% in 9MFY11 (~60% in
FY10). The premium was ~90% in December. CIL expects e-auction mix to be
~12-12.5% in FY12 (11% in FY10). It is also exploring the option of forward
e-auction for the sale of coal for 12 months (on a rolling basis).
Beneficiation expansion to kick in post-FY14
CIL has awarded only two of the 20 coal washery projects. The remaining 18
washery projects (Including three in the final stages) are expected to be awarded
by the end of 2011. These projects are likely to kick in in phases from FY15
onwards. It expects around 80-85mt of coal to be washed in FY16.
Price objective basis & risk
Coal India Limited (XOXCF)
Our PO of Rs350 is set at our NPV estimate. Our NPV analysis assumes a
WACC of 13% and a terminal growth of 2%. At our PO Coal India would trade at
10.5x FY12E EBIDTA and 9.4x FY12E adjusted EBITDA (adjusted for OBR). We
have assumed coal volumes of 425mn tons in FY10, 451mn tons in FY12E. We
forecast volumes to grow at 5.1% CAGR over FY13-18E.
Stronger volume growth, higher realisations and lower costs pose upside risks to
our valuations. Downside risks to our valuations are slower pace of environmental
approvals, prohibition of coal mining in areas where CIL reserves are located,
sharper than expected increase in wage costs and inability to raise prices to pass
thru wage cost hikes.
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