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Coal India
Neutral; COAL.BO, COAL IN
Q3FY11 results- First Cut: Broadly in line Q3 still leaves a big ask in Q4 to meet estimates
• Broadly in-line earnings driven by higher over burden removal, stores,
contractual expenses, social overhead, partially offset by higher other
income, dispatches: Coal India (COAL) reported Q3FY11 PAT at Rs26.2bn
vs. JPMe of Rs29bn and BBRG consensus of Rs28bn (Q2 PAT of Rs15bn).
COAL has revised its reporting format vs. H2 reported numbers, with other
operational income now part of interest income (there is only one other income
line item now) and hence below the EBITDA line. COAL reported Q3 EBITDA
at Rs34.8bn vs. JPMe of Rs36.1bn (adjusted for the new reporting format) and
BBRG cons of Rs34.3bn. The total costs were 6% higher than our estimate and
1% higher q/q, with stores (+7% q/q, +9% JPMe), contractual expenses (+9%
q/q; +4% JPMe), social overhead (+13% q/q, +11% JPMe). Over burden
expenses doubled q/q to Rs6bn. We expect this to come down in Q4. The higher
costs were partially off set by higher volumes (+11% q/q, +1% JPMe), ASP
(+3% q/q, +2% JPMe). We believe the higher ASP was driven by a higher
proportion of e-auction volumes at 12% vs. our estimate of 10%. EBITDA/MT
at Rs314/MT was 5% lower than our estimates. Higher other income was offset
by continued high tax rate (37% in Q3 v/s 41% in Q2 and 31% JPMe). Net-net
adjusted for everything, these are broadly in-line earnings, which coming
after the disappointing Q2, should be of some relief to the market.
• However, asking rate in Q4 to meet JPM/Street FY11E high, see modest
downside risks to estimates for FY11: YTD FY11 PAT stood at Rs66.5bn vs.
FY11JPMe of Rs107bn and BBRG consensus of Rs111.3bn, implying Q4 PAT
of Rs40.6/44.8bn to meet JPM/cons estimates and this would require a q/q
increase of 38-52% from Q3 levels. While total dispatch volumes are likely to
increase q/q (driven by higher wagon availability), e-auction volumes are likely
to increase in Q4 (given inventory) and also get higher premiums, with likely
lower over burden removal adjustment expenses, we still see downside estimates
to our and Street earnings estimates for FY11. While the downside is not large,
we would highlight that COAL has already seen one round of estimate cuts for
FY11 post the weak Q2 results.
• Stock has mostly priced in earnings miss of FY11, how does production
(and pricing) evolve for FY12-13E to likely drive performance over next
few months: Recent media reports (ET) has highlighted high level meetings
within the Government of India on how best to resolve coal production issues,
impacting mostly COAL. We believe the next immediate data point is whether
CEPI is extended beyond March-11, as this has led to sharp volume guidance
declines in FY11-12E. We expect COAL to get relief from CEPI for FY12 and
hence do not see downside risks to our volume estimates of 460MT vs. COAL
guidance of 447MT in FY12. However, we see upside risks to our wage cost
estimates given inflation.
• Our earnings estimates are currently under review (COAL analyst meet on Feb
16), COAL also declared an interim dividend of Rs3.5/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral; COAL.BO, COAL IN
Q3FY11 results- First Cut: Broadly in line Q3 still leaves a big ask in Q4 to meet estimates
• Broadly in-line earnings driven by higher over burden removal, stores,
contractual expenses, social overhead, partially offset by higher other
income, dispatches: Coal India (COAL) reported Q3FY11 PAT at Rs26.2bn
vs. JPMe of Rs29bn and BBRG consensus of Rs28bn (Q2 PAT of Rs15bn).
COAL has revised its reporting format vs. H2 reported numbers, with other
operational income now part of interest income (there is only one other income
line item now) and hence below the EBITDA line. COAL reported Q3 EBITDA
at Rs34.8bn vs. JPMe of Rs36.1bn (adjusted for the new reporting format) and
BBRG cons of Rs34.3bn. The total costs were 6% higher than our estimate and
1% higher q/q, with stores (+7% q/q, +9% JPMe), contractual expenses (+9%
q/q; +4% JPMe), social overhead (+13% q/q, +11% JPMe). Over burden
expenses doubled q/q to Rs6bn. We expect this to come down in Q4. The higher
costs were partially off set by higher volumes (+11% q/q, +1% JPMe), ASP
(+3% q/q, +2% JPMe). We believe the higher ASP was driven by a higher
proportion of e-auction volumes at 12% vs. our estimate of 10%. EBITDA/MT
at Rs314/MT was 5% lower than our estimates. Higher other income was offset
by continued high tax rate (37% in Q3 v/s 41% in Q2 and 31% JPMe). Net-net
adjusted for everything, these are broadly in-line earnings, which coming
after the disappointing Q2, should be of some relief to the market.
• However, asking rate in Q4 to meet JPM/Street FY11E high, see modest
downside risks to estimates for FY11: YTD FY11 PAT stood at Rs66.5bn vs.
FY11JPMe of Rs107bn and BBRG consensus of Rs111.3bn, implying Q4 PAT
of Rs40.6/44.8bn to meet JPM/cons estimates and this would require a q/q
increase of 38-52% from Q3 levels. While total dispatch volumes are likely to
increase q/q (driven by higher wagon availability), e-auction volumes are likely
to increase in Q4 (given inventory) and also get higher premiums, with likely
lower over burden removal adjustment expenses, we still see downside estimates
to our and Street earnings estimates for FY11. While the downside is not large,
we would highlight that COAL has already seen one round of estimate cuts for
FY11 post the weak Q2 results.
• Stock has mostly priced in earnings miss of FY11, how does production
(and pricing) evolve for FY12-13E to likely drive performance over next
few months: Recent media reports (ET) has highlighted high level meetings
within the Government of India on how best to resolve coal production issues,
impacting mostly COAL. We believe the next immediate data point is whether
CEPI is extended beyond March-11, as this has led to sharp volume guidance
declines in FY11-12E. We expect COAL to get relief from CEPI for FY12 and
hence do not see downside risks to our volume estimates of 460MT vs. COAL
guidance of 447MT in FY12. However, we see upside risks to our wage cost
estimates given inflation.
• Our earnings estimates are currently under review (COAL analyst meet on Feb
16), COAL also declared an interim dividend of Rs3.5/share.
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