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Volumes rise ~12% Q-o-Q; realisations inch upwards but below
estimate
Coal India Q3FY11 net sales were driven by an 11.7% Q-o-Q rise in volumes to
110.5 mt (in-line with our estimate) as well as a 2.5% Q-o-Q increase in blended
realizations to INR 1,148/t (estimate : INR 1,179/t). Consequently, net sales
rose by 14.4% Q-o-Q to INR 126.9 bn, marginally below our estimates of INR
129.7 bn. On a Y-o-Y basis, though volumes have increased ~3%, we do not
have the comparable financials for the respective periods.
Controlled cost coupled with higher realizations increase blended
EBITDA/t
For Q3FY11, a surprise Q-o-Q reduction was seen in employee cost by ~6% to
INR 45 bn. This was also lower than our estimate of INR 47.8 bn. Additionally;
CIL was also able to save cost on repairs and maintenance, albeit with certain
minor increases in other cost heads. Overall, CIL was able to reduce operational
cost by INR 266/t Q-o-Q, thereby leading to an improvement in EBITDA/t of
63% to INR 306/t. EBITDA during Q3FY11 grew by 81.8% Q-o-Q to INR 33.8 bn.
Healthy EBITDA growth also resulted in ~75.7% Q-o-Q rise in net profit to INR
26.3 bn.
Outlook and valuations: Maintain ‘HOLD/Sector Performer’
While CIL’s Q3FY11 results were in line with our estimates, we are cutting our
FY11 volumes from 453 mt to 431 mt in line with revised volume guidance by
CIL. This implies a Q4FY11 volume of ~120mt, an increase of ~9% Q-o-Q.
Considering the same and the actuals upto 9mFY11, we are lowering our FY11E
revenue and EBITDA estimates by ~3.9% and 3.3% respectively to INR 490.8
bn and INR 127.9 bn. We keep our FY12 numbers largely unchanged and will
take a view post the analyst meet on February 16. We currently have a
‘HOLD/Sector Performer’ rating on the stock with a fair valuation of INR 316.
Company Description
Coal India (CIL) is the world’s largest coal reserve holder and producer and also controls
~80% of the Indian coal market. It is going to be the primary beneficiary of the
structural deficit of coal in India. Moreover, it is one of the least cost producers of coal in
the world.
CIL, a Maharatna company, is one of the largest public sector companies in India in
terms of turnover. Its product portfolio consists largely of thermal coal (90%) with the
balance being coking coal. The company enjoys a near-monopoly position in the lucrative
coal market and is more of a utility player due to assured volume off-take, pseudo
regulated environment and minimal chance of a product price cut, as prices already
remain at ~50% discount to internal benchmark prices.
It currently operates ~471 mines in India and is also scouting for international mines to
increase global presence and assure its resources. It sells ~10% of its production based
on the e-auction route and ~3.5% beneficiated coal (2x realisations of raw coal).
Beneficiated coal volumes are expected to rise significantly to ~150 mtpa by FY17 (25%
of total volumes).
Investment Theme
India’s largest coal miner with a near monopoly position
Significant headroom to increase product prices
Expansion to increase mining capacity as well as beneficiated coal volumes
Strong balance sheet with low leverage and significant cash reserves
Key Risks
Proposal to share 26% of profits with local inhabitants
Inability to obtain environmental clearances and/or acquire land
MoEF’s proposal to segregate mining locations into ‘Go’ and ‘No-go’ zones
Naxalite attacks remain a key threat
Increase in costs without immediate increase in prices
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volumes rise ~12% Q-o-Q; realisations inch upwards but below
estimate
Coal India Q3FY11 net sales were driven by an 11.7% Q-o-Q rise in volumes to
110.5 mt (in-line with our estimate) as well as a 2.5% Q-o-Q increase in blended
realizations to INR 1,148/t (estimate : INR 1,179/t). Consequently, net sales
rose by 14.4% Q-o-Q to INR 126.9 bn, marginally below our estimates of INR
129.7 bn. On a Y-o-Y basis, though volumes have increased ~3%, we do not
have the comparable financials for the respective periods.
Controlled cost coupled with higher realizations increase blended
EBITDA/t
For Q3FY11, a surprise Q-o-Q reduction was seen in employee cost by ~6% to
INR 45 bn. This was also lower than our estimate of INR 47.8 bn. Additionally;
CIL was also able to save cost on repairs and maintenance, albeit with certain
minor increases in other cost heads. Overall, CIL was able to reduce operational
cost by INR 266/t Q-o-Q, thereby leading to an improvement in EBITDA/t of
63% to INR 306/t. EBITDA during Q3FY11 grew by 81.8% Q-o-Q to INR 33.8 bn.
Healthy EBITDA growth also resulted in ~75.7% Q-o-Q rise in net profit to INR
26.3 bn.
Outlook and valuations: Maintain ‘HOLD/Sector Performer’
While CIL’s Q3FY11 results were in line with our estimates, we are cutting our
FY11 volumes from 453 mt to 431 mt in line with revised volume guidance by
CIL. This implies a Q4FY11 volume of ~120mt, an increase of ~9% Q-o-Q.
Considering the same and the actuals upto 9mFY11, we are lowering our FY11E
revenue and EBITDA estimates by ~3.9% and 3.3% respectively to INR 490.8
bn and INR 127.9 bn. We keep our FY12 numbers largely unchanged and will
take a view post the analyst meet on February 16. We currently have a
‘HOLD/Sector Performer’ rating on the stock with a fair valuation of INR 316.
Company Description
Coal India (CIL) is the world’s largest coal reserve holder and producer and also controls
~80% of the Indian coal market. It is going to be the primary beneficiary of the
structural deficit of coal in India. Moreover, it is one of the least cost producers of coal in
the world.
CIL, a Maharatna company, is one of the largest public sector companies in India in
terms of turnover. Its product portfolio consists largely of thermal coal (90%) with the
balance being coking coal. The company enjoys a near-monopoly position in the lucrative
coal market and is more of a utility player due to assured volume off-take, pseudo
regulated environment and minimal chance of a product price cut, as prices already
remain at ~50% discount to internal benchmark prices.
It currently operates ~471 mines in India and is also scouting for international mines to
increase global presence and assure its resources. It sells ~10% of its production based
on the e-auction route and ~3.5% beneficiated coal (2x realisations of raw coal).
Beneficiated coal volumes are expected to rise significantly to ~150 mtpa by FY17 (25%
of total volumes).
Investment Theme
India’s largest coal miner with a near monopoly position
Significant headroom to increase product prices
Expansion to increase mining capacity as well as beneficiated coal volumes
Strong balance sheet with low leverage and significant cash reserves
Key Risks
Proposal to share 26% of profits with local inhabitants
Inability to obtain environmental clearances and/or acquire land
MoEF’s proposal to segregate mining locations into ‘Go’ and ‘No-go’ zones
Naxalite attacks remain a key threat
Increase in costs without immediate increase in prices
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