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Differential px hike a positive
In a surprise move, Coal India has implemented an asymmetrical price hike
on Sat. Non-power sector customers will see a steep 30% hike while power
customers will see a much smaller hike. We now see a low probability of
another price hike in 1QFY12 ahead of the wage settlement. We view the
move towards differential pricing for different customers as a positive and as
a step closer towards market pricing. The 12% hike in blended ASPs
theoretically merits a 5% EPS upgrade but we maintain estimates pending the
wage settlement in Jun-11 to get a better sense on FY12 costs. O-PF stays.
Details of the price hike
Coal India has implemented 3 price hikes: 1) A price hike of 30% for non-power,
fertilizer and defence sector customers (20% of total volumes) for all grades of
coal (excl A & B); 2) A & B grade coal (7% of total volumes) will now be priced at
a 15% discount to international prices (100%+ hike); and 3) Coal from Mahanadi
Coalfields (MCL) (25% of volumes) will be priced at par with coal from South
Eastern Coalfields (SECL). Coking coal sold to non-steel customers will also be
hiked by 30%. As per the company, the price hike will add Rs6.5bn to revenues in
FY11 (one month) and Rs62bn to revenues in FY12. The blended hike in ASPs will
be ~12-13%.
Move towards differential pricing a positive step
We were always concerned regarding Coal India’s ability to take large price hikes
for power sector customers given the implications on inflation and the political
sensitivity of higher power prices for retail consumers. In this context, a move
towards differential pricing between power consumers and non-power consumers
(where opposition will be much less) is a positive step. We don’t rule out further
hikes for non-power customers in the future.
Another price hike in 1QFY12 now looks unlikely
We expected a 10% across-the-board hike in early-FY12 ahead of the wage
settlement in Jun-11. With a 12% hike now having been implemented, we view
another price hike in 1Q as being very unlikely. The last wage hike was in 2006
when wages were hiked by ~22%. Our estimates assume a 20% hike in per-head
staff costs in FY12.
Maintain estimates pending wage settlement; maintain O-PF
We believe that the 11% rise in Coal India’s stock yesterday has priced in the
strong profit growth in FY12 post this price hike. Stock might stay range bound till
clarity emerges on whether there will be another price hike in 1Q. We maintain
estimates pending a better clarity on FY12 costs post wage settlement but see a
5% upgrade possibility over FY12-13. Maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Differential px hike a positive
In a surprise move, Coal India has implemented an asymmetrical price hike
on Sat. Non-power sector customers will see a steep 30% hike while power
customers will see a much smaller hike. We now see a low probability of
another price hike in 1QFY12 ahead of the wage settlement. We view the
move towards differential pricing for different customers as a positive and as
a step closer towards market pricing. The 12% hike in blended ASPs
theoretically merits a 5% EPS upgrade but we maintain estimates pending the
wage settlement in Jun-11 to get a better sense on FY12 costs. O-PF stays.
Details of the price hike
Coal India has implemented 3 price hikes: 1) A price hike of 30% for non-power,
fertilizer and defence sector customers (20% of total volumes) for all grades of
coal (excl A & B); 2) A & B grade coal (7% of total volumes) will now be priced at
a 15% discount to international prices (100%+ hike); and 3) Coal from Mahanadi
Coalfields (MCL) (25% of volumes) will be priced at par with coal from South
Eastern Coalfields (SECL). Coking coal sold to non-steel customers will also be
hiked by 30%. As per the company, the price hike will add Rs6.5bn to revenues in
FY11 (one month) and Rs62bn to revenues in FY12. The blended hike in ASPs will
be ~12-13%.
Move towards differential pricing a positive step
We were always concerned regarding Coal India’s ability to take large price hikes
for power sector customers given the implications on inflation and the political
sensitivity of higher power prices for retail consumers. In this context, a move
towards differential pricing between power consumers and non-power consumers
(where opposition will be much less) is a positive step. We don’t rule out further
hikes for non-power customers in the future.
Another price hike in 1QFY12 now looks unlikely
We expected a 10% across-the-board hike in early-FY12 ahead of the wage
settlement in Jun-11. With a 12% hike now having been implemented, we view
another price hike in 1Q as being very unlikely. The last wage hike was in 2006
when wages were hiked by ~22%. Our estimates assume a 20% hike in per-head
staff costs in FY12.
Maintain estimates pending wage settlement; maintain O-PF
We believe that the 11% rise in Coal India’s stock yesterday has priced in the
strong profit growth in FY12 post this price hike. Stock might stay range bound till
clarity emerges on whether there will be another price hike in 1Q. We maintain
estimates pending a better clarity on FY12 costs post wage settlement but see a
5% upgrade possibility over FY12-13. Maintain O-PF.
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