Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India has increased prices of coal sold to non-regulated end-users with immediate effect.
With volume growth constrained, the move to differential pricing is a positive step and was
necessary to compensate the cost inflation. Regulatory risks remain with MMDR bill expected to
be tabled in parliament soon.
Company quantifies revenue impact of Rs62bn in FY12
Coal India has informed the BSE that coal prices have been revised with immediate effect. It
has added that due to the revision of coal prices, Coal India would generate approximate
additional revenue of Rs6.5bn in FY11 and Rs62bn in FY12.
Differential pricing takes effect
News reports suggest that Coal India has increased prices of select grades of coal. 1) Grade
A and Grade B non-coking coal (Gross calorific value > 5800Kcal/kg) prices have been linked
to the international price and will now be priced at a 15% discount to global spot prices. 2)
Notified prices of other coal grades C to F have been increased 30%. However, this price
increase does not apply to regulated industries of utilities, fertilisers and defence sectors. 3)
Also, the price of coal produced by Mahanadi Coalfields Ltd (MCL) has been increased to
bring it on a par with that of South Eastern Coalfields Ltd (SECL). For historical reasons,
MCL's prices were lower than SECL.
Grade A, B coal constitutes only 6% of volumes
Grade A and Grade B coal constituted 6% of 2010 volumes at 28mt. Already, a significant
portion of the high grade coal is being sold through the MoU route. Even during fiscal 2010,
the price of Grade A, B and C non coking coal sold under specific memorandum of
understanding was approximately 92.0%, 99.0% and 96.0%, respectively, higher than the
notified price of such grades of non coking coal. We estimate an average price increase of
30% to 20mt of volumes will add Rs21bn to FY12 revenues.
Price of coal sold to non-regulated consumers increased 30%
We estimate that the notified price increase of 30% of coal sold to non regulated industries
will impact about 14% of volumes. 80% of coal is sold to the power sector which is regulated
and the price increase will not apply to these volumes. Steel (including sponge iron) and
cement constitutes 7% of volumes and these will be primarily impacted. We estimate this
could add Rs22.8bn to FY12 revenues.
MCL prices increased by about Rs90/tonne
The notified prices of MCL have been increased by about Rs90/tonne bringing it in-line with
prices of SECL. MCL production volumes were 104mt in FY10. We estimate incremental
revenues of Rs9.9bn due to the same.
We estimate a net impact of Rs10.5bn to our current FY12 earnings estimate
Due to inflation concerns, whether the current price hike will dilute or postpone the scheduled
notified price hike at the end of the year remains to be seen. Assuming the scheduled notified
price increase does not happen, the current price hike would add Rs41.8bn in FY12F from
our FY11F estimate of Rs507bn. We estimate a 15mt increase in yoy off-take volumes in
FY12 will add Rs18bn. We therefore estimate a net addition of ~Rs60bn in FY12F revenues
from FY11F levels. We note that we have already modelled a 2% increase in yoy volumes
and 6% increase in average realizations leading to an FY12F estimate of Rs551bn versus an
FY11F estimate of Rs507bn. (+44bn yoy). We estimate a net impact of +Rs16bn to our
FY12F revenue estimate of Rs551bn and an impact of +Rs10.5bn (10%) to FY12 earnings
estimate. We estimate a valuation impact of +Rs15/share.
Price increase was critical to compensate for lack of volume growth
The selective price increase is in-line with management's comments during the 3QFY11
analyst meet when they said that a differential pricing policy based on the end-consumer was
being considered. Coal India's volumes have been impacted by CEPI as well as shortage of
railway rakes and FY11F and FY12F off-take targets have been revised downwards to 428mt
and 448mt respectively. Employee expenses have been rising with inflation. Dearness
allowance has increased from 27.7% of basic salary in October 2009 (at the time of last
notified price hike) to 49.9% at the end of 3QFY11. With lack of volume growth, a price
increase was necessary to retain margins.
MMDR bill could have a negative impact of 17% on FY12 earnings (Rs35/share)
We note that the draft MMDR bill is scheduled to be tabled in the current budget session of
parliament. We estimate a negative impact of 17% on FY12F earnings if the MMDR bill is
implemented in its current form. This could potentially more than neutralize the current price
increase. We also await further clarity from the management on the impact the current price
hike will have on the scheduled notified price hike expected at the end of this year. We have a
Sell rating on Coal India with target price of Rs270.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India has increased prices of coal sold to non-regulated end-users with immediate effect.
With volume growth constrained, the move to differential pricing is a positive step and was
necessary to compensate the cost inflation. Regulatory risks remain with MMDR bill expected to
be tabled in parliament soon.
Company quantifies revenue impact of Rs62bn in FY12
Coal India has informed the BSE that coal prices have been revised with immediate effect. It
has added that due to the revision of coal prices, Coal India would generate approximate
additional revenue of Rs6.5bn in FY11 and Rs62bn in FY12.
Differential pricing takes effect
News reports suggest that Coal India has increased prices of select grades of coal. 1) Grade
A and Grade B non-coking coal (Gross calorific value > 5800Kcal/kg) prices have been linked
to the international price and will now be priced at a 15% discount to global spot prices. 2)
Notified prices of other coal grades C to F have been increased 30%. However, this price
increase does not apply to regulated industries of utilities, fertilisers and defence sectors. 3)
Also, the price of coal produced by Mahanadi Coalfields Ltd (MCL) has been increased to
bring it on a par with that of South Eastern Coalfields Ltd (SECL). For historical reasons,
MCL's prices were lower than SECL.
Grade A, B coal constitutes only 6% of volumes
Grade A and Grade B coal constituted 6% of 2010 volumes at 28mt. Already, a significant
portion of the high grade coal is being sold through the MoU route. Even during fiscal 2010,
the price of Grade A, B and C non coking coal sold under specific memorandum of
understanding was approximately 92.0%, 99.0% and 96.0%, respectively, higher than the
notified price of such grades of non coking coal. We estimate an average price increase of
30% to 20mt of volumes will add Rs21bn to FY12 revenues.
Price of coal sold to non-regulated consumers increased 30%
We estimate that the notified price increase of 30% of coal sold to non regulated industries
will impact about 14% of volumes. 80% of coal is sold to the power sector which is regulated
and the price increase will not apply to these volumes. Steel (including sponge iron) and
cement constitutes 7% of volumes and these will be primarily impacted. We estimate this
could add Rs22.8bn to FY12 revenues.
MCL prices increased by about Rs90/tonne
The notified prices of MCL have been increased by about Rs90/tonne bringing it in-line with
prices of SECL. MCL production volumes were 104mt in FY10. We estimate incremental
revenues of Rs9.9bn due to the same.
We estimate a net impact of Rs10.5bn to our current FY12 earnings estimate
Due to inflation concerns, whether the current price hike will dilute or postpone the scheduled
notified price hike at the end of the year remains to be seen. Assuming the scheduled notified
price increase does not happen, the current price hike would add Rs41.8bn in FY12F from
our FY11F estimate of Rs507bn. We estimate a 15mt increase in yoy off-take volumes in
FY12 will add Rs18bn. We therefore estimate a net addition of ~Rs60bn in FY12F revenues
from FY11F levels. We note that we have already modelled a 2% increase in yoy volumes
and 6% increase in average realizations leading to an FY12F estimate of Rs551bn versus an
FY11F estimate of Rs507bn. (+44bn yoy). We estimate a net impact of +Rs16bn to our
FY12F revenue estimate of Rs551bn and an impact of +Rs10.5bn (10%) to FY12 earnings
estimate. We estimate a valuation impact of +Rs15/share.
Price increase was critical to compensate for lack of volume growth
The selective price increase is in-line with management's comments during the 3QFY11
analyst meet when they said that a differential pricing policy based on the end-consumer was
being considered. Coal India's volumes have been impacted by CEPI as well as shortage of
railway rakes and FY11F and FY12F off-take targets have been revised downwards to 428mt
and 448mt respectively. Employee expenses have been rising with inflation. Dearness
allowance has increased from 27.7% of basic salary in October 2009 (at the time of last
notified price hike) to 49.9% at the end of 3QFY11. With lack of volume growth, a price
increase was necessary to retain margins.
MMDR bill could have a negative impact of 17% on FY12 earnings (Rs35/share)
We note that the draft MMDR bill is scheduled to be tabled in the current budget session of
parliament. We estimate a negative impact of 17% on FY12F earnings if the MMDR bill is
implemented in its current form. This could potentially more than neutralize the current price
increase. We also await further clarity from the management on the impact the current price
hike will have on the scheduled notified price hike expected at the end of this year. We have a
Sell rating on Coal India with target price of Rs270.
No comments:
Post a Comment