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Coal India
Neutral ; COAL.BO, COAL IN
Key takeaways from analyst meet - Currently caught between MoEF, Railways and inflation, but light emerging for FY13E impact
• FY12 production target of 447MT was assuming CEPI: Coal India
(COAL) indicated that its production target of 447MT for FY12
assumed that CEPI would continue after Mar-11. But even if CEPI is
removed, COAL would not see a material increase from 447MT levels
as the real impact would flow through only in 2H FY12. Further, given
the offtake problems, it would result only in an increase in inventory. If
CEPI continues beyond FY12, production growth of +5% would be
difficult. The current softening of the stance of the MoEF should result
in faster approvals for the proposals stuck in the 'no-go' mining area and
hence would be a longer-term positive.
• Moving to off-take – onus lies on railways: COAL indicated FY11E
offtake of 427-428MT (implying 4Q offtake of 117-118MT) and FY12E
offtake volumes higher by ~15-20MT from FY11E levels. Wagon
availability remains constrained with 4Q availability seeing no growth.
YTD rake increase stood at 7 rakes per day, but for full year FY11 the
increase should be 5-5.5 rakes per day. Against this backdrop, +5%
dispatch growth would be difficult. However, COAL highlighted that
high-level interactions have started with Railways (under current rules of
railways, users in the coal sector cannot order their own wagons) to have
a longer-term solution. Further, law & order and political problems in
Talcher, North Karanpura coal fields (19% of FY10 production) have
impacted the movement of coal from the mines to the railways wagons.
COAL highlighted that if the railway infrastructure problem does not get
solved, they would look at setting up captive power plants. E-auction
volume beyond 12% is difficult given road capacity constraints.
• Requests for price increases have been put forward – Could see
differential pricing for non-regulated consumers: COAL highlighted
that it had put forth requests to increase notified coal prices (it would
start provisioning for wage costs increases from Jul-10, and hence if
notified coal price increases do not come, there would be earnings hit).
Interestingly, in reply to our query on potential differential coal prices for
non-regulated utilities (merchant power, sponge, steel, aluminum,
cement), the company said it was thinking along these lines and expected
some clarity on this over the coming months. Any such move would be a
strong positive, in our view.
• Tax rate to decrease in 4Q and wage cost increase to track general
inflation: The tax rate should be significantly lower in 4Q than the 37%
in 3Q FY11, with full year tax rate closer to 31%. Wage costs would
increase in sync with inflation levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral ; COAL.BO, COAL IN
Key takeaways from analyst meet - Currently caught between MoEF, Railways and inflation, but light emerging for FY13E impact
• FY12 production target of 447MT was assuming CEPI: Coal India
(COAL) indicated that its production target of 447MT for FY12
assumed that CEPI would continue after Mar-11. But even if CEPI is
removed, COAL would not see a material increase from 447MT levels
as the real impact would flow through only in 2H FY12. Further, given
the offtake problems, it would result only in an increase in inventory. If
CEPI continues beyond FY12, production growth of +5% would be
difficult. The current softening of the stance of the MoEF should result
in faster approvals for the proposals stuck in the 'no-go' mining area and
hence would be a longer-term positive.
• Moving to off-take – onus lies on railways: COAL indicated FY11E
offtake of 427-428MT (implying 4Q offtake of 117-118MT) and FY12E
offtake volumes higher by ~15-20MT from FY11E levels. Wagon
availability remains constrained with 4Q availability seeing no growth.
YTD rake increase stood at 7 rakes per day, but for full year FY11 the
increase should be 5-5.5 rakes per day. Against this backdrop, +5%
dispatch growth would be difficult. However, COAL highlighted that
high-level interactions have started with Railways (under current rules of
railways, users in the coal sector cannot order their own wagons) to have
a longer-term solution. Further, law & order and political problems in
Talcher, North Karanpura coal fields (19% of FY10 production) have
impacted the movement of coal from the mines to the railways wagons.
COAL highlighted that if the railway infrastructure problem does not get
solved, they would look at setting up captive power plants. E-auction
volume beyond 12% is difficult given road capacity constraints.
• Requests for price increases have been put forward – Could see
differential pricing for non-regulated consumers: COAL highlighted
that it had put forth requests to increase notified coal prices (it would
start provisioning for wage costs increases from Jul-10, and hence if
notified coal price increases do not come, there would be earnings hit).
Interestingly, in reply to our query on potential differential coal prices for
non-regulated utilities (merchant power, sponge, steel, aluminum,
cement), the company said it was thinking along these lines and expected
some clarity on this over the coming months. Any such move would be a
strong positive, in our view.
• Tax rate to decrease in 4Q and wage cost increase to track general
inflation: The tax rate should be significantly lower in 4Q than the 37%
in 3Q FY11, with full year tax rate closer to 31%. Wage costs would
increase in sync with inflation levels.
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