Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral
COAL.BO, COAL IN
Implements differential coal price increases; Structural
positive for COAL, negative for non-power consumers
• Differential coal pricing key positive: Coal India (COAL) has implemented a
series of measures including: a) Bringing Grade A& B price to import parity
(~Rs2000 increase), b) increased MCL coal prices to bring them in line with
SECL coal prices, and c) most importantly increased prices by ~30% for all non
regulated sectors. We believe this is an important event for both COAL and
its consumers as it de-links non regulated customers from linkage coal
prices and effectively removes the cost advantage vs. import coal prices.
COAL expects Rs62bn incremental revenue in FY12E. The sectors most
impacted would be sponge iron, aluminum and cement (steel users were
paying much higher prices for coking coal anyways). Given that even after
this price hike, COAL’s prices would still be at a significant discount to import
and e-auction prices, we would not be surprised to see further hikes on cost
pressures. In our view, this is the first good news on COAL since listing (stock
+12% today).
• Earnings impact: We had built in Rs30bn of higher revenues on ASP increases
for FY12E and not build in any wage provision. As per our estimates, non
power sector is around 20% of volumes and removing the e-auction (JPME at
12% in FY12E) should impact 8% of total volumes. Against our prior estimate,
there is a positive PAT impact of Rs20bn (16% against our prior estimate).
While COAL has mentioned that the price increase has been taken to mitigate
wage cost inflation and general cost inflation, we believe there is also some
preparation for the wage provisions. We now build in wage provision of 25%
(15% for FY12E) and assume that there could be notified coal price increases of
at least 6% in FY12E to maintain margins. We increase our FY12/13E EPS by
13/10% and increase our March-12 PT to Rs325 (we maintain our multiple).
The current hike means COAL would report strong Q1FY12E post which
earnings trend would be driven by wage provisions/notified coal price hike.
• As environment issues get resolved and differential coal prices
implemented, we become incrementally more positive on COAL. While
today's stock move leaves little upside on valuations, in our view, COAL would
be an interesting play to look at below Rs300. Key risks include no notified coal
price increases in FY12E even as wage provisions are built in.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral
COAL.BO, COAL IN
Implements differential coal price increases; Structural
positive for COAL, negative for non-power consumers
• Differential coal pricing key positive: Coal India (COAL) has implemented a
series of measures including: a) Bringing Grade A& B price to import parity
(~Rs2000 increase), b) increased MCL coal prices to bring them in line with
SECL coal prices, and c) most importantly increased prices by ~30% for all non
regulated sectors. We believe this is an important event for both COAL and
its consumers as it de-links non regulated customers from linkage coal
prices and effectively removes the cost advantage vs. import coal prices.
COAL expects Rs62bn incremental revenue in FY12E. The sectors most
impacted would be sponge iron, aluminum and cement (steel users were
paying much higher prices for coking coal anyways). Given that even after
this price hike, COAL’s prices would still be at a significant discount to import
and e-auction prices, we would not be surprised to see further hikes on cost
pressures. In our view, this is the first good news on COAL since listing (stock
+12% today).
• Earnings impact: We had built in Rs30bn of higher revenues on ASP increases
for FY12E and not build in any wage provision. As per our estimates, non
power sector is around 20% of volumes and removing the e-auction (JPME at
12% in FY12E) should impact 8% of total volumes. Against our prior estimate,
there is a positive PAT impact of Rs20bn (16% against our prior estimate).
While COAL has mentioned that the price increase has been taken to mitigate
wage cost inflation and general cost inflation, we believe there is also some
preparation for the wage provisions. We now build in wage provision of 25%
(15% for FY12E) and assume that there could be notified coal price increases of
at least 6% in FY12E to maintain margins. We increase our FY12/13E EPS by
13/10% and increase our March-12 PT to Rs325 (we maintain our multiple).
The current hike means COAL would report strong Q1FY12E post which
earnings trend would be driven by wage provisions/notified coal price hike.
• As environment issues get resolved and differential coal prices
implemented, we become incrementally more positive on COAL. While
today's stock move leaves little upside on valuations, in our view, COAL would
be an interesting play to look at below Rs300. Key risks include no notified coal
price increases in FY12E even as wage provisions are built in.
No comments:
Post a Comment