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Coal India
Key risks remain
The 3QFY11 results, with net profit of Rs26.2bn, were well above our
expectations but below consensus. We increase our FY11/12 earnings forecasts
by 6%/3% due to changes in realisation and operating cost assumptions. We
believe key risks remain and maintain our Sell rating, with a new TP of Rs270.
3QFY11 earnings exceed our expectations, but below consensus
Net revenues came in at Rs126.9bn (up 14% qoq; 2QFY11 numbers not available) vs our
expectation of Rs115.0bn. Production volume was 114mt (up 26% qoq and up 2.5% yoy).
Off-take was 111mt (up 12% qoq and up 2.9% yoy) vs our forecast of 106mt. Average
realisation, at US$25.5/tonne, was higher than we expected, due to, we suspect, higher eauction volumes/realisations. Employee expenses declined 6% qoq to Rs45bn. EBITDA (adj
for an overburden removal provision) was Rs41.4bn (up 82% qoq) vs our forecast of
Rs25.2bn. The tax rate for the quarter was 38%. Net income was Rs26.2bn, up 75% qoq vs
our forecast of Rs19.5bn and a consensus (Bloomberg) forecast of Rs28.1bn.
High international prices should aid e-auction prices; volume uncertainty continues
Coal prices rallied sharply in the wake of floods in Queensland, Australia. The 6700kcal
Newcastle thermal coal spot price is at US$125/tonne, up 32% since October. This should
aid e-auction realisations. We increase our FY11-12F average realisation 3-4% for the
continued strength in coal prices that we expect. Uncertainty continues on the volume front,
with management cutting its FY11/12 volume guidance to 440/447mt for the impact of CEPI
(Comprehensive Environment Pollution Index). However, recent news reports suggest India’s
Environment Ministry may expedite mining approvals for Coal India. We reduce our FY11F
volume 2% to 431mt and retain our FY12/13F volume growth rates of 4.4%/4%, respectively.
Key risks remain; we maintain our Sell rating, with a new target price of Rs270
We remain cautious about key near-term risks that include: 1) the draft MMDR Act (Mines
and Minerals Development and Regulation Act), which, if passed in its current form, could
have a 17% impact on FY12F earnings; 2) the impact of a wage revision hike due in July (we
factor in a 17%/12% increase in employee costs for FY12/13F); and 3) timing and quantum
of a notified price hike considering the inflationary effect on the economy (we assume a 9%
hike in December). We value Coal India using a three-stage DCF model for a target price of
Rs270 (up from Rs265). Maintain Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Key risks remain
The 3QFY11 results, with net profit of Rs26.2bn, were well above our
expectations but below consensus. We increase our FY11/12 earnings forecasts
by 6%/3% due to changes in realisation and operating cost assumptions. We
believe key risks remain and maintain our Sell rating, with a new TP of Rs270.
3QFY11 earnings exceed our expectations, but below consensus
Net revenues came in at Rs126.9bn (up 14% qoq; 2QFY11 numbers not available) vs our
expectation of Rs115.0bn. Production volume was 114mt (up 26% qoq and up 2.5% yoy).
Off-take was 111mt (up 12% qoq and up 2.9% yoy) vs our forecast of 106mt. Average
realisation, at US$25.5/tonne, was higher than we expected, due to, we suspect, higher eauction volumes/realisations. Employee expenses declined 6% qoq to Rs45bn. EBITDA (adj
for an overburden removal provision) was Rs41.4bn (up 82% qoq) vs our forecast of
Rs25.2bn. The tax rate for the quarter was 38%. Net income was Rs26.2bn, up 75% qoq vs
our forecast of Rs19.5bn and a consensus (Bloomberg) forecast of Rs28.1bn.
High international prices should aid e-auction prices; volume uncertainty continues
Coal prices rallied sharply in the wake of floods in Queensland, Australia. The 6700kcal
Newcastle thermal coal spot price is at US$125/tonne, up 32% since October. This should
aid e-auction realisations. We increase our FY11-12F average realisation 3-4% for the
continued strength in coal prices that we expect. Uncertainty continues on the volume front,
with management cutting its FY11/12 volume guidance to 440/447mt for the impact of CEPI
(Comprehensive Environment Pollution Index). However, recent news reports suggest India’s
Environment Ministry may expedite mining approvals for Coal India. We reduce our FY11F
volume 2% to 431mt and retain our FY12/13F volume growth rates of 4.4%/4%, respectively.
Key risks remain; we maintain our Sell rating, with a new target price of Rs270
We remain cautious about key near-term risks that include: 1) the draft MMDR Act (Mines
and Minerals Development and Regulation Act), which, if passed in its current form, could
have a 17% impact on FY12F earnings; 2) the impact of a wage revision hike due in July (we
factor in a 17%/12% increase in employee costs for FY12/13F); and 3) timing and quantum
of a notified price hike considering the inflationary effect on the economy (we assume a 9%
hike in December). We value Coal India using a three-stage DCF model for a target price of
Rs270 (up from Rs265). Maintain Sell.
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