Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India (COAL)
Metals & Mining
Guarded optimism. Coal India (CIL) management displayed guarded optimism,
maintaining its FY2012E sales target at 447 mn tons despite signs of a resolution of the
imbroglio between the Ministry of Environment and Forest (MoEF) and Ministry of Coal
(MoC). The management believed the release of the moratorium would only start
accruing benefits from 2HFY12E. The management also remained resolute about its
plans to effect a price increase to offset the provisioning requirements for the wage
revisions effective July 2011. We maintain our ADD rating and target price of
Rs345/share.
Near-term production slippages largely factored in
We see limited downside risk to our volume estimates as we already factor in the production
target cuts on account of slippages in capacity ramp-up due to environmental constraints. Our
revised sale estimates of 426 mn tons in FY2011E are aligned to management’s guidance, though
we continue to build moderately higher sales of 452 mn tons in FY2012E—implying a target miss
of 34 mn tons compared to a 39-mn-tons miss guided by the management. We do concede that
higher-than-estimated inventory build-up due to constraints in transportation infrastructure could
see some slippages in actual sale volumes.
We note that a target miss of 39 mn tons in FY2012E was linked to continuation of CEPI norms
(refer our note dated February 15, 2011 – ‘Improved volumes and the benefit of leverage’) and an
early resolution could enable CIL to improve volume growth from 2HFY12E. Recent media reports
indicate that MoEF has agreed to dilute environmental norms for 16 coal blocks and indicated that
the CEPI moratorium could be lifted by March 2011.
Hike in notified prices could precede employee wage revision
CIL will likely increase its notified prices across all the grades in CY2011 to offset the nonexecutive
wage revision effective July 2011. The management has indicated that the level of price
increase in FY2012E would be a function the of wage increase. Management has also indicated
that wage provisioning from wage revision would start in July 2011 and a request for a price hike
has already been made and could be available for the entire year—compared to a price increase in
2HFY12E currently factored by us.
The price hike would also signal CIL’s ability to effect price hikes in order to (1) narrow the gap
between parity prices, (2) offset cost escalations, and (3) compensate for lower volume growth. In
our view, the timing and quantum of the price hike would be a key as the street is factoring in a
relatively moderate hike.
Maintain ADD rating and target price of Rs345/share
We maintain our ADD rating and target price of Rs345/share. Our target price is based on
13X FY2012E EPS adjusted for overburden removal and interest income and implies an
EV/EBITDA of 9.5X on FY2012E EBITDA (adjusted for overburden removal). CIL currently
trades at 15X FY2012E EPS (reported) and 9.3X FY2012E EBITDA (reported). In our view, CIL
will likely continue to command premium multiples to account for (1) expectations of
narrowing discount to global coal prices, and (2) constantly improving employee efficiency
metrics that will further propel margin expansion. We have marginally revised our FY2011E
EPS estimate to Rs16.5 (Rs17.2 previously) to account for lower sales volumes in FY2011E.
Exhibit 1: Our target price implies an EV/EBITDA of 9.3X on FY2012E adjusted EBITDA
Target price calculation of CIL
EBITDA (Rs bn) 148
OBR (Rs bn) 26
Adjusted EBITDA (Rs bn) 174
Interest income (Rs bn) 32
PAT (Rs bn) 129
Adjusted PAT (Rs bn) 125
EPS (Rs/share) 20
Adjusted EPS (Rs/share) 20
P/E on FY2012E adjusted PAT (X) 13
Value of coal business (Rs bn) 1,656
Cash (Rs bn) 525
Market Cap (Rs bn) 2,180
Target price 345
Notes.
(1) Adjusted EBITDA is calculated after removing the effect OBR adjustment.
(2) Adjusted PAT is calculating after removing the effect of
OBR adjustment and interest income net of taxes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India (COAL)
Metals & Mining
Guarded optimism. Coal India (CIL) management displayed guarded optimism,
maintaining its FY2012E sales target at 447 mn tons despite signs of a resolution of the
imbroglio between the Ministry of Environment and Forest (MoEF) and Ministry of Coal
(MoC). The management believed the release of the moratorium would only start
accruing benefits from 2HFY12E. The management also remained resolute about its
plans to effect a price increase to offset the provisioning requirements for the wage
revisions effective July 2011. We maintain our ADD rating and target price of
Rs345/share.
Near-term production slippages largely factored in
We see limited downside risk to our volume estimates as we already factor in the production
target cuts on account of slippages in capacity ramp-up due to environmental constraints. Our
revised sale estimates of 426 mn tons in FY2011E are aligned to management’s guidance, though
we continue to build moderately higher sales of 452 mn tons in FY2012E—implying a target miss
of 34 mn tons compared to a 39-mn-tons miss guided by the management. We do concede that
higher-than-estimated inventory build-up due to constraints in transportation infrastructure could
see some slippages in actual sale volumes.
We note that a target miss of 39 mn tons in FY2012E was linked to continuation of CEPI norms
(refer our note dated February 15, 2011 – ‘Improved volumes and the benefit of leverage’) and an
early resolution could enable CIL to improve volume growth from 2HFY12E. Recent media reports
indicate that MoEF has agreed to dilute environmental norms for 16 coal blocks and indicated that
the CEPI moratorium could be lifted by March 2011.
Hike in notified prices could precede employee wage revision
CIL will likely increase its notified prices across all the grades in CY2011 to offset the nonexecutive
wage revision effective July 2011. The management has indicated that the level of price
increase in FY2012E would be a function the of wage increase. Management has also indicated
that wage provisioning from wage revision would start in July 2011 and a request for a price hike
has already been made and could be available for the entire year—compared to a price increase in
2HFY12E currently factored by us.
The price hike would also signal CIL’s ability to effect price hikes in order to (1) narrow the gap
between parity prices, (2) offset cost escalations, and (3) compensate for lower volume growth. In
our view, the timing and quantum of the price hike would be a key as the street is factoring in a
relatively moderate hike.
Maintain ADD rating and target price of Rs345/share
We maintain our ADD rating and target price of Rs345/share. Our target price is based on
13X FY2012E EPS adjusted for overburden removal and interest income and implies an
EV/EBITDA of 9.5X on FY2012E EBITDA (adjusted for overburden removal). CIL currently
trades at 15X FY2012E EPS (reported) and 9.3X FY2012E EBITDA (reported). In our view, CIL
will likely continue to command premium multiples to account for (1) expectations of
narrowing discount to global coal prices, and (2) constantly improving employee efficiency
metrics that will further propel margin expansion. We have marginally revised our FY2011E
EPS estimate to Rs16.5 (Rs17.2 previously) to account for lower sales volumes in FY2011E.
Exhibit 1: Our target price implies an EV/EBITDA of 9.3X on FY2012E adjusted EBITDA
Target price calculation of CIL
EBITDA (Rs bn) 148
OBR (Rs bn) 26
Adjusted EBITDA (Rs bn) 174
Interest income (Rs bn) 32
PAT (Rs bn) 129
Adjusted PAT (Rs bn) 125
EPS (Rs/share) 20
Adjusted EPS (Rs/share) 20
P/E on FY2012E adjusted PAT (X) 13
Value of coal business (Rs bn) 1,656
Cash (Rs bn) 525
Market Cap (Rs bn) 2,180
Target price 345
Notes.
(1) Adjusted EBITDA is calculated after removing the effect OBR adjustment.
(2) Adjusted PAT is calculating after removing the effect of
OBR adjustment and interest income net of taxes.
No comments:
Post a Comment