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Environment and logistics issues lead to paring down of volume targets
Coal India (CIL) has revised down its sales volume targets for FY11 and FY12 to
433 mt (earlier 462 mt; our estimate: 453 mt) and 447 mt (earlier 486 mt; our
estimate: 475 mt), respectively. The embargo on coal production, led by the
Comprehensive Environmental Pollution Index (CEPI) linked issue, caused loss of
20 mt in FY11 and an estimated 40 mt in FY12. Lack of timely environmental
approvals has caused an additional loss of 5 mt in FY11.
Employee costs rising, led by DA increases; other costs also on the rise
Led by rising inflation, DA costs (which were 22% of basic in FY10) have risen to
44% of basic. Consumables, fuel oil and spares costs have also been rising. With
production static, CIL is not able to absorb these costs on per tonne basis.
Earlier-than-expected price hike and e-Auction proportion are key
CIL has commenced the process for a price hike in view of increasing costs.
Further, it is targeting to increase the proportion of e-Auction to 13-15% in FY11
and 18-20% in FY12 from ~10% in FY10. This would significantly boost blended
realisations. However, we believe political compulsions may keep the e-Auction
proportion between 10-12%.
Estimates at risk if realisations do not rise in line with the above
Our calculations indicate that the negative impact of volume reduction (~5-7%
reduction from our estimates) could be offset by increase in blended realisations.
We expect more clarity on this post declaration of Q3FY11 results. At this stage,
we maintain estimates but see downside risks, especially to FY12 numbers.
To place orders for 111 mtpa washeries by December 2011
CIL expects all orders for 20 washeries, of 111 mtpa, to be placed by December
2011. Considering 18 month implementation and 6 months for trial runs, the full
capacity is expected to be available by FY15, which is earlier than expected.
We currently have ‘HOLD/Sector Performer’ recommendation/rating on CIL
with a price target of INR 316/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Environment and logistics issues lead to paring down of volume targets
Coal India (CIL) has revised down its sales volume targets for FY11 and FY12 to
433 mt (earlier 462 mt; our estimate: 453 mt) and 447 mt (earlier 486 mt; our
estimate: 475 mt), respectively. The embargo on coal production, led by the
Comprehensive Environmental Pollution Index (CEPI) linked issue, caused loss of
20 mt in FY11 and an estimated 40 mt in FY12. Lack of timely environmental
approvals has caused an additional loss of 5 mt in FY11.
Employee costs rising, led by DA increases; other costs also on the rise
Led by rising inflation, DA costs (which were 22% of basic in FY10) have risen to
44% of basic. Consumables, fuel oil and spares costs have also been rising. With
production static, CIL is not able to absorb these costs on per tonne basis.
Earlier-than-expected price hike and e-Auction proportion are key
CIL has commenced the process for a price hike in view of increasing costs.
Further, it is targeting to increase the proportion of e-Auction to 13-15% in FY11
and 18-20% in FY12 from ~10% in FY10. This would significantly boost blended
realisations. However, we believe political compulsions may keep the e-Auction
proportion between 10-12%.
Estimates at risk if realisations do not rise in line with the above
Our calculations indicate that the negative impact of volume reduction (~5-7%
reduction from our estimates) could be offset by increase in blended realisations.
We expect more clarity on this post declaration of Q3FY11 results. At this stage,
we maintain estimates but see downside risks, especially to FY12 numbers.
To place orders for 111 mtpa washeries by December 2011
CIL expects all orders for 20 washeries, of 111 mtpa, to be placed by December
2011. Considering 18 month implementation and 6 months for trial runs, the full
capacity is expected to be available by FY15, which is earlier than expected.
We currently have ‘HOLD/Sector Performer’ recommendation/rating on CIL
with a price target of INR 316/share.
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