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Coal India Limited
Key Takeaways from Analyst Meeting: Stay OW
We expect the stock to be re-rated: We look for news
flow on production growth to improve from here and
expect the Street will start to appreciate CIL’s ability to
consistently generate strong earnings growth with low
downside risk, aided by a fast-changing sales mix.
Key takeaways from CIL’s analyst meeting held in
Kolkata today:
1) CIL’s production target of 447 mt and our forecast of
454 mt may have upside:
2) Favorable developments are taking place on the
regulatory front – these could lift F12 volumes
ahead of current Street expectations,
3) CIL is looking to raise its notified prices in July 2011
and has started the process well in time.
Details of CIL’s expectations from the meeting:
Volumes
Current guidance of 447 mt output in F12 is based on
the worst-case scenario. If the CEPI issue is resolved –
and recently there has been some progress – there
could be upside to this number.
Positive for the stock, in our view.
Deliberations have been accelerated on regulatory
issues like “No go” and “CEPI” – CIL expects some
easing of environmental restrictions.
Positive: a favorable result here could reverse the de-rating
that stemmed from a fall in volume growth guidance and
expectations. Environmental issues have been among the
major reasons for slippage in volume growth.
Railways’ capacity to handle increased volumes
remains a cause of concern.
However, this could lead to a higher proportion of coal
evacuation by road – indicating a higher proportion of
premium-priced e-auction sales. Positive.
Prices, Costs
• Expect cost escalation of 7-8% in FY11 (we are at 7.9%).
Neutral.
• The company expects to achieve consensus on notified
price rise in 1-2 months. It is asking for a high price
increase due to problems in enhancing volumes. Price
hike meeting to take place near the end of February.
Quite encouraging – if this progresses well, then CIL could
implement its benchmark price increases by 1st July
2011): Positive.
• CIL’s approach toward notified price increase is much
more aggressive than earlier because it is a listed
company now.
Positive.
• Expect e-auction sales proportion of 12.5% in F12 ( we are
at 13.5%): -ve
• E-auctions carried a price premium of 81% and 93% over
notified prices in the first nine months of F11 and in
December 2010.
In F10 this figure was 56%: Positive.
• Price of Raniganj coal (grade “A” coal) in F11 has gone up
by about 11% over the F10 price.
This indicates CIL’s ability to get enhanced prices for its
top grade coal via MOU sales. Positive.
Others
• If railways don't come up with incremental capacity, then
CIL will look at setting up power plants.
More of a vision, longer-term intent – we do not consider
this in our earnings model: Neutral.
• Eleven washeries have been clubbed into one tender to
expedite the washery projects.
Good move – could bring forward a big change in the
proportion of washed coal from F16 to F15: Positive.
• Tendering for washeries to be completed in 18 months
and 30 months will be needed to set up the washing
facilities.
Neutral.
• CEPI (Comprehensive Environmental Pollution Index) in
mining areas of CIL is around 30, while CEPI reports it as
70 because they look at it from the entire zone, where
there are other heavy-pollution industries (cokeries,
foundries, etc.). CIL is accordingly disputing the zone-wise
CEPI calculation.
Positive.
• Railway has placed order for 16,000 (about 25 rakes)
wagons, out of which 2,000 will be replacements. CIL
expects to receive 10 incremental rakes (block of wagons
in one freight train) per day in F12 over F11. Currently CIL
is working with 175 rakes per day while in F10 the figure
was 168.
Positive.
• A group of ministers is meeting to discuss the CEPI issue
on 17 February.
CIL has not defaulted on FSA but has not signed any new FSA
in F10 and F11.
Company Description
Coal India Ltd (CIL) is the largest coal producer in the world with
F10 production of 431mt. It also has the largest reserve base in
the world of ~19bt as per JORC standards. Primarily an
open-cast operator, the company works through 9 subsidiaries,
operates 471 mines in 21 coal fields across eight states in India.
India Nonferrous Metals & Mining
Industry View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Limited
Key Takeaways from Analyst Meeting: Stay OW
We expect the stock to be re-rated: We look for news
flow on production growth to improve from here and
expect the Street will start to appreciate CIL’s ability to
consistently generate strong earnings growth with low
downside risk, aided by a fast-changing sales mix.
Key takeaways from CIL’s analyst meeting held in
Kolkata today:
1) CIL’s production target of 447 mt and our forecast of
454 mt may have upside:
2) Favorable developments are taking place on the
regulatory front – these could lift F12 volumes
ahead of current Street expectations,
3) CIL is looking to raise its notified prices in July 2011
and has started the process well in time.
Details of CIL’s expectations from the meeting:
Volumes
Current guidance of 447 mt output in F12 is based on
the worst-case scenario. If the CEPI issue is resolved –
and recently there has been some progress – there
could be upside to this number.
Positive for the stock, in our view.
Deliberations have been accelerated on regulatory
issues like “No go” and “CEPI” – CIL expects some
easing of environmental restrictions.
Positive: a favorable result here could reverse the de-rating
that stemmed from a fall in volume growth guidance and
expectations. Environmental issues have been among the
major reasons for slippage in volume growth.
Railways’ capacity to handle increased volumes
remains a cause of concern.
However, this could lead to a higher proportion of coal
evacuation by road – indicating a higher proportion of
premium-priced e-auction sales. Positive.
Prices, Costs
• Expect cost escalation of 7-8% in FY11 (we are at 7.9%).
Neutral.
• The company expects to achieve consensus on notified
price rise in 1-2 months. It is asking for a high price
increase due to problems in enhancing volumes. Price
hike meeting to take place near the end of February.
Quite encouraging – if this progresses well, then CIL could
implement its benchmark price increases by 1st July
2011): Positive.
• CIL’s approach toward notified price increase is much
more aggressive than earlier because it is a listed
company now.
Positive.
• Expect e-auction sales proportion of 12.5% in F12 ( we are
at 13.5%): -ve
• E-auctions carried a price premium of 81% and 93% over
notified prices in the first nine months of F11 and in
December 2010.
In F10 this figure was 56%: Positive.
• Price of Raniganj coal (grade “A” coal) in F11 has gone up
by about 11% over the F10 price.
This indicates CIL’s ability to get enhanced prices for its
top grade coal via MOU sales. Positive.
Others
• If railways don't come up with incremental capacity, then
CIL will look at setting up power plants.
More of a vision, longer-term intent – we do not consider
this in our earnings model: Neutral.
• Eleven washeries have been clubbed into one tender to
expedite the washery projects.
Good move – could bring forward a big change in the
proportion of washed coal from F16 to F15: Positive.
• Tendering for washeries to be completed in 18 months
and 30 months will be needed to set up the washing
facilities.
Neutral.
• CEPI (Comprehensive Environmental Pollution Index) in
mining areas of CIL is around 30, while CEPI reports it as
70 because they look at it from the entire zone, where
there are other heavy-pollution industries (cokeries,
foundries, etc.). CIL is accordingly disputing the zone-wise
CEPI calculation.
Positive.
• Railway has placed order for 16,000 (about 25 rakes)
wagons, out of which 2,000 will be replacements. CIL
expects to receive 10 incremental rakes (block of wagons
in one freight train) per day in F12 over F11. Currently CIL
is working with 175 rakes per day while in F10 the figure
was 168.
Positive.
• A group of ministers is meeting to discuss the CEPI issue
on 17 February.
CIL has not defaulted on FSA but has not signed any new FSA
in F10 and F11.
Company Description
Coal India Ltd (CIL) is the largest coal producer in the world with
F10 production of 431mt. It also has the largest reserve base in
the world of ~19bt as per JORC standards. Primarily an
open-cast operator, the company works through 9 subsidiaries,
operates 471 mines in 21 coal fields across eight states in India.
India Nonferrous Metals & Mining
Industry View: Attractive
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