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Coal India Neutral
COAL.BO, COAL IN
'Consultation process on price hikes has started'
highlights pulls and pushes for COAL INDIA
• Coal India (COAL) Chairman in media interview indicates ‘consultation
process on price hikes has started’: COAL chairman in a recent media
interview (CNBC) commented that the ‘consultation process on notified price
hikes’ has started. While we are not surprised by this and have believed that
given the inflationary impact of notified coal price increases, government
clearance for the same would be critical, many investors have expected a more
'free pricing' from COAL. COAL Chairman also said that given the wage
negotiations for June-11 wage agreement have yet to start, but any wage
revision would be retroactive, prices would need to be revised up.
• Management guides to 447MT production in FY12 v/s 486MT earlier
target- we expect CEPI issues to be resolved and FY12 volumes to be closer
to our estimate of 460MT: COAL Chairman re-iterated that because of CEPI
issues, production in FY12 would be 447MT. We expect CEPI to be resolved.
Media reports (ET) have highlighted that the ‘Prime Minister has asked the
Ministry of Environment And Forests (MOEF) to review the concepts of nogo
areas and CEPI’. Given the continued increasing coal demand in the
country, and higher international prices, COAL’s production problems are
a bigger headwind for the overall economy, as the continued surge in
Indian imports would likely push spot global prices higher and be
inflationary for the economy. Official import data for FY10 stood at 67MT
(23MT coking coal and 44MT thermal) and given the YTD production growth
of 1% (April-Dec all India coal prod), imports are likely to be higher this year
(mine inventory has reduced 10MT from March through Dec).
• Cost pressures increasing from wage costs, lower production for COAL:
Wage costs are increasing given the Dearness Allowance increase, which
combined with lower production leads to higher CoP/MT (wage costs are ~50%
of total costs and fixed in nature). E-auction sales and premiums have been
higher given higher import prices.
• So can company get both volume and price increase? Given where inflation
is, we do not expect any large price increases in the near term but a more
moderate 3-4% as more likely, with more concrete notified coal price increases
closer to the wage agreement finalization. We expect FY12 production volumes
to be higher (as we expect that CEPI would likely be resolved). Hence we do not
expect both volume and price increase for COAL in FY12E.
• FII ownership continues to increase: FII ownership in COAL has increased
from 3.2% to 5.5% between Sept and Dec qrtrs. We continue to believe that the
coming months are critical for COAL in terms of whether the high multiple
sustains or not, as clarity on CEPI, wage revision, prices increases, and e-auction
volumes would emerge. COAL reports on Feb 14th and we expect EBITDA
at Rs40.7bn, PAT at Rs29bn and dispatches at 109MT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Neutral
COAL.BO, COAL IN
'Consultation process on price hikes has started'
highlights pulls and pushes for COAL INDIA
• Coal India (COAL) Chairman in media interview indicates ‘consultation
process on price hikes has started’: COAL chairman in a recent media
interview (CNBC) commented that the ‘consultation process on notified price
hikes’ has started. While we are not surprised by this and have believed that
given the inflationary impact of notified coal price increases, government
clearance for the same would be critical, many investors have expected a more
'free pricing' from COAL. COAL Chairman also said that given the wage
negotiations for June-11 wage agreement have yet to start, but any wage
revision would be retroactive, prices would need to be revised up.
• Management guides to 447MT production in FY12 v/s 486MT earlier
target- we expect CEPI issues to be resolved and FY12 volumes to be closer
to our estimate of 460MT: COAL Chairman re-iterated that because of CEPI
issues, production in FY12 would be 447MT. We expect CEPI to be resolved.
Media reports (ET) have highlighted that the ‘Prime Minister has asked the
Ministry of Environment And Forests (MOEF) to review the concepts of nogo
areas and CEPI’. Given the continued increasing coal demand in the
country, and higher international prices, COAL’s production problems are
a bigger headwind for the overall economy, as the continued surge in
Indian imports would likely push spot global prices higher and be
inflationary for the economy. Official import data for FY10 stood at 67MT
(23MT coking coal and 44MT thermal) and given the YTD production growth
of 1% (April-Dec all India coal prod), imports are likely to be higher this year
(mine inventory has reduced 10MT from March through Dec).
• Cost pressures increasing from wage costs, lower production for COAL:
Wage costs are increasing given the Dearness Allowance increase, which
combined with lower production leads to higher CoP/MT (wage costs are ~50%
of total costs and fixed in nature). E-auction sales and premiums have been
higher given higher import prices.
• So can company get both volume and price increase? Given where inflation
is, we do not expect any large price increases in the near term but a more
moderate 3-4% as more likely, with more concrete notified coal price increases
closer to the wage agreement finalization. We expect FY12 production volumes
to be higher (as we expect that CEPI would likely be resolved). Hence we do not
expect both volume and price increase for COAL in FY12E.
• FII ownership continues to increase: FII ownership in COAL has increased
from 3.2% to 5.5% between Sept and Dec qrtrs. We continue to believe that the
coming months are critical for COAL in terms of whether the high multiple
sustains or not, as clarity on CEPI, wage revision, prices increases, and e-auction
volumes would emerge. COAL reports on Feb 14th and we expect EBITDA
at Rs40.7bn, PAT at Rs29bn and dispatches at 109MT.
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