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Coal India Limited Hold
Are we heading for a slowdown?
Three takeaways from the first analyst meet of Coal India (CIL)
Firstly, the management dispelled any hopes of volume pick up. In the near
term, the challenges are railway rake availability and in the medium term,
the environmental challenges could result in twelfth plan volume growth of
coal production at 4-5% - lower than 7% achieved in FY10. Secondly, CIL
may not face any risk of penalties on shortfall in production, as they have
not signed any firm fuel supply agreement for power capacities commissioned after FY09. Thirdly, the risk to earnings of CIL in the medium term,
with net income growth of 18-20%, lies largely in reduced operating leverage benefits in cost.
During the analyst meet, what surprised us was the general sombre mood
of participants, who were hoping that, perhaps there could be an issue of
posturing from CIL to highlight constraints especially on the environmental
front and that the growth could pick up on addressing them. But looking at
a scenario of mere 20 mnt of coal addition in FY12E from CIL (70% of India's
coal requirement) v/s incremental demand of 100mnt, we clearly a problem.
Though we remain comfortable that CIL should be able to meet our expectations (one of the lowest on the Street), there is a possibility of consensus
downgrades.
However, our greater concern is regarding outlook on energy availability in
India. This is hurting both the ongoing as well as new power capex and also
has ramifications on overall economic growth in India.
Maintain Hold with a target price (TP) of INR 330 on strong balance sheet
(~USD9 bn of excess cash) and possibility of one-off special dividend. Our
TP is derived from average of DCF and P/E of 18x FY12E. Key upside risk is
earlier than expected regulated price hike, while downside risk is environmental issues further constraining the volume growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Limited Hold
Are we heading for a slowdown?
Three takeaways from the first analyst meet of Coal India (CIL)
Firstly, the management dispelled any hopes of volume pick up. In the near
term, the challenges are railway rake availability and in the medium term,
the environmental challenges could result in twelfth plan volume growth of
coal production at 4-5% - lower than 7% achieved in FY10. Secondly, CIL
may not face any risk of penalties on shortfall in production, as they have
not signed any firm fuel supply agreement for power capacities commissioned after FY09. Thirdly, the risk to earnings of CIL in the medium term,
with net income growth of 18-20%, lies largely in reduced operating leverage benefits in cost.
During the analyst meet, what surprised us was the general sombre mood
of participants, who were hoping that, perhaps there could be an issue of
posturing from CIL to highlight constraints especially on the environmental
front and that the growth could pick up on addressing them. But looking at
a scenario of mere 20 mnt of coal addition in FY12E from CIL (70% of India's
coal requirement) v/s incremental demand of 100mnt, we clearly a problem.
Though we remain comfortable that CIL should be able to meet our expectations (one of the lowest on the Street), there is a possibility of consensus
downgrades.
However, our greater concern is regarding outlook on energy availability in
India. This is hurting both the ongoing as well as new power capex and also
has ramifications on overall economic growth in India.
Maintain Hold with a target price (TP) of INR 330 on strong balance sheet
(~USD9 bn of excess cash) and possibility of one-off special dividend. Our
TP is derived from average of DCF and P/E of 18x FY12E. Key upside risk is
earlier than expected regulated price hike, while downside risk is environmental issues further constraining the volume growth.
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