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Result highlights
Volume growth remains muted
CIL’s 3QFY2011 net sales increased by 8.8% qoq to `12,692cr; while for
9MFY2011, net sales stood at `35,217cr. During the quarter, coal production
grew by 2.5% yoy to 114mn tonnes, while sales volumes increased by 3.0% yoy to
111mn tonnes. For 9MFY2011, production grew by mere 1.4% yoy to 300mn
tonnes and sales volume increased by 2.9% yoy to 310mn tonnes. Volumes were
lower on account of imposition of CEPI and the ongoing go and no-go issue.
Average blended realisation for 3QFY2011 stood at `1,148/tonne.
Strong operating performance
During the quarter, overburden expenses grew by 101.3% qoq to `694cr, social
expense increased by 13.2% qoq to `563cr. However, salary cost declined by
5.9% qoq to `4,500cr and other expenses remained flat qoq. As a result, EBITDA
margin expanded by 1,124bp qoq to 27.2%, which resulted in EBITDA growing by
85.5% qoq to `3,449cr. For 9MFY2011, EBITDA came in at `8,495cr.
During the quarter, other income increased by 11.2% qoq to `1,288cr, interest
expense increased by 86.5% qoq to `33cr and depreciation grew by 11.8% qoq to
`414cr. Further, tax rate was lower at 37.6% as against 42.0% in 2QFY2011.
Consequently, net income for 3QFY2011 grew by 75.7% qoq to `2,626cr.
For 9MFY2011, net profit came in at `6,646cr.
Key concall takeaways
Management guided FY2011 and FY2012 sales volume to be 428mn tonnes
and 445mn tonnes, respectively.
CIL’s e-aution sales are undertaken mainly by roadways and, hence, it does
not face railway rake availability constraints for its e-auction sales.
Management informed that currently e-auction sales premium has improved
to ~80% over linkage coal rates. For FY2011, CIL expects e-auction sales to
increase over 12% of total sales.
Management informed that lower availability of railway rakes remains a
constraint to increase CIL’s offtake currently.
Management indicated that the company has already started discussion with
the government to increase the notified coal prices, as the next wage revision
is due in July 2011.
CIL is trying to increase its production of metallurgical coal.
Investment rationale
Volume growth mainly post FY2012
We expect muted volume growth in FY2012 on account of the imposition of CEPI
and the ongoing go and no-go issue. Moreover, lower availability of railway rakes
for the supply of coal remains a concern for CIL. Nevertheless, CIL remains
confident of sorting out most of these issues during FY2012. Hence, we expect
CIL’s volume growth to be higher post FY2012. Furthermore, increased availability
of railway rakes should enable CIL to increase its offtake.
Coal prices to increase in FY2012
CIL sells raw coal at ~63% discount to global prices. We expect blended
realisations to increase in FY2012 on account of a) the anticipated increase in staff
costs (wage revision due in July 2011) and b) a gradual increase in e-auction sales
volumes from 11.6% of raw coal sales in FY2010 to 12.5% in FY2012, where the
realised price is ~60% higher than the notified price.
Domestic demand outpacing supply
Demand is expected to increase at a 10.6% CAGR over FY2010–15 as the power
sector, which accounts for nearly 75% of the total coal demand, is likely to witness
exponential growth, as ~60GW of thermal capacity gets added over the period.
With production expected to witness an 8.6% CAGR over the same period lagging
demand, India will structurally remain deficient in coal, thus placing CIL in a
favourable position.
Competitive cost structure
CIL is one of the lowest-cost coal producers in the world, with an average cost of
US $16/tonne. This is because CIL’s production from open cast mines has
significantly lower production cost (US $11/tonne) and accounts for 90% of its total
production as compared to underground mines, which have higher production
cost of US $59/tonne.
Outlook and valuation
We expect CIL’s sales volume growth to remain muted in FY2012. Furthermore,
although we expect blended realisations to improve in FY2012, we believe it will
be only to the extent of the rise in staff costs.
At the CMP, the stock is trading at 11.9x FY2011E and 9.7x FY2012E EV/EBITDA.
We believe the current price levels fairly discounts the robust business model and
normalised volume as well as price growth expectations over the medium term.
Hence, we maintain our Neutral view on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India – 3QFY2011 Result Update
Angel Broking maintains a Neutral on Coal India.
Volume growth remains muted: Coal India’s (CIL) net sales stood at `12,692cr,
up 8.8% qoq; while for 9MFY2011, net sales stood at `35,217cr. During
3QFY2011, coal production grew by 2.5% yoy to 114mn tonnes, while sales
volume grew by 3.0% yoy to 111mn tonnes. Volumes were lower primarily due to
the imposition of Comprehensive Environment Pollution Index (CEPI) restrictions
and go and no-go issues. Blended realisation stood at `1,148/tonne.
Strong operating performance: For 3QFY2011, overburden expenses surged by
101.3% qoq to `694cr, social expense grew by 13.2% qoq to `563cr, while
salary costs declined by 5.9% qoq to `4,500cr and other expenses remained flat
qoq. As a result, EBITDA margin expanded by 1,124bp qoq to 27.2% and EBITDA
grew by 85.5% qoq to `3,449cr. For 9MFY2011, EBITDA came in at `8,495cr.
During the quarter, other income increased by 11.2% qoq to `1,288cr. Interest
expense grew by 86.5% qoq to `33cr and depreciation grew by 11.8% qoq to
`414cr. Further, tax rate was lower at 37.6% as against 42.0% in 2QFY2011.
Thus, net income grew by 75.7% qoq to `2,626cr. For 9MFY2011, net profit
came in at `6,646cr.
Outlook and valuation: We expect CIL’s sales volume growth to remain muted in
FY2012. Furthermore, although we expect blended realisations to improve in
FY2012, we believe improvement will be only to the extent of rise in staff costs.
At the CMP, the stock is trading at 11.9x FY2011E and 9.7x FY2012E EV/EBITDA.
We believe current price levels fairly discount the stable business model and
normalised volume and price growth expectations. Hence, we maintain our
Neutral view on the stock.
Result highlights
Volume growth remains muted
CIL’s 3QFY2011 net sales increased by 8.8% qoq to `12,692cr; while for
9MFY2011, net sales stood at `35,217cr. During the quarter, coal production
grew by 2.5% yoy to 114mn tonnes, while sales volumes increased by 3.0% yoy to
111mn tonnes. For 9MFY2011, production grew by mere 1.4% yoy to 300mn
tonnes and sales volume increased by 2.9% yoy to 310mn tonnes. Volumes were
lower on account of imposition of CEPI and the ongoing go and no-go issue.
Average blended realisation for 3QFY2011 stood at `1,148/tonne.
Strong operating performance
During the quarter, overburden expenses grew by 101.3% qoq to `694cr, social
expense increased by 13.2% qoq to `563cr. However, salary cost declined by
5.9% qoq to `4,500cr and other expenses remained flat qoq. As a result, EBITDA
margin expanded by 1,124bp qoq to 27.2%, which resulted in EBITDA growing by
85.5% qoq to `3,449cr. For 9MFY2011, EBITDA came in at `8,495cr.
During the quarter, other income increased by 11.2% qoq to `1,288cr, interest
expense increased by 86.5% qoq to `33cr and depreciation grew by 11.8% qoq to
`414cr. Further, tax rate was lower at 37.6% as against 42.0% in 2QFY2011.
Consequently, net income for 3QFY2011 grew by 75.7% qoq to `2,626cr.
For 9MFY2011, net profit came in at `6,646cr.
Key concall takeaways
Management guided FY2011 and FY2012 sales volume to be 428mn tonnes
and 445mn tonnes, respectively.
CIL’s e-aution sales are undertaken mainly by roadways and, hence, it does
not face railway rake availability constraints for its e-auction sales.
Management informed that currently e-auction sales premium has improved
to ~80% over linkage coal rates. For FY2011, CIL expects e-auction sales to
increase over 12% of total sales.
Management informed that lower availability of railway rakes remains a
constraint to increase CIL’s offtake currently.
Management indicated that the company has already started discussion with
the government to increase the notified coal prices, as the next wage revision
is due in July 2011.
CIL is trying to increase its production of metallurgical coal.
Investment rationale
Volume growth mainly post FY2012
We expect muted volume growth in FY2012 on account of the imposition of CEPI
and the ongoing go and no-go issue. Moreover, lower availability of railway rakes
for the supply of coal remains a concern for CIL. Nevertheless, CIL remains
confident of sorting out most of these issues during FY2012. Hence, we expect
CIL’s volume growth to be higher post FY2012. Furthermore, increased availability
of railway rakes should enable CIL to increase its offtake.
Coal prices to increase in FY2012
CIL sells raw coal at ~63% discount to global prices. We expect blended
realisations to increase in FY2012 on account of a) the anticipated increase in staff
costs (wage revision due in July 2011) and b) a gradual increase in e-auction sales
volumes from 11.6% of raw coal sales in FY2010 to 12.5% in FY2012, where the
realised price is ~60% higher than the notified price.
Domestic demand outpacing supply
Demand is expected to increase at a 10.6% CAGR over FY2010–15 as the power
sector, which accounts for nearly 75% of the total coal demand, is likely to witness
exponential growth, as ~60GW of thermal capacity gets added over the period.
With production expected to witness an 8.6% CAGR over the same period lagging
demand, India will structurally remain deficient in coal, thus placing CIL in a
favourable position.
Competitive cost structure
CIL is one of the lowest-cost coal producers in the world, with an average cost of
US $16/tonne. This is because CIL’s production from open cast mines has
significantly lower production cost (US $11/tonne) and accounts for 90% of its total
production as compared to underground mines, which have higher production
cost of US $59/tonne.
Outlook and valuation
We expect CIL’s sales volume growth to remain muted in FY2012. Furthermore,
although we expect blended realisations to improve in FY2012, we believe it will
be only to the extent of the rise in staff costs.
At the CMP, the stock is trading at 11.9x FY2011E and 9.7x FY2012E EV/EBITDA.
We believe the current price levels fairly discounts the robust business model and
normalised volume as well as price growth expectations over the medium term.
Hence, we maintain our Neutral view on the stock.
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