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UBS Investment Research
First Read: Coal India
Coal India raises coal prices selectively
Coal price increases to generate additional Rs62bn in FY12 revenue
CI has increased coal prices which will help increase its revenues by
Rs6.5bn/Rs62bn in FY11/FY12. At 447mt of sale in FY12, this would imply 12%
increase in average coal prices over 9MFY11 ASP of Rs1,136/t. (We est 9% price
increase over FY11-13). However, CI has not been able to confirm price increases
across various grades and quantities on which it will be applicable.
Media reports indicate introduction of dual pricing
As per media reports 1) Power utilities, IPPs, fertiliser & defence sectors have been
exempt from price hikes except for consumers of MCL (Mahanadi Coalfields Ltd)
– all consumers of MCL (incl power utilities) will face c20% price increase
(Rs90/t) to bring it in line with South Eastern Coal Fields (SECL) – in FY10 MCL
sold 104mt. 2) A, B grade coal will be sold at 15% discount to global prices (7% of
total volumes) while 3) C-F grade will be higher by 30% for the non-core sector
Likely upside risk to our estimates; no clarity on further price hikes
We believe this is a positive step and will allay investor concerns on CI’s
profitability given recent concerns on volume growth and higher wage bill due to
increase in dearness allowance (49% vs 27.7% in Oct 09). We will revisit our
estimates as we get more clarity on current & future hikes (wage negotiations in
Jun ‘11) from CI. There is likely to be upside risks to our earnings though marginal
downside risk to volumes (447/470mt in FY12/FY13 vs guidance of 428/447mt)
Valuation: Maintain Buy and PT of Rs400
We continue to value CI using a target PE multiple (16.5x December 2012E EPS).
Coal India
Coal India is the largest coal company in the world (primarily thermal coal). The
government owns 90% of the company. It sells its entire output (415Mt in
FY10) in the domestic market. Coal India sells coal at a significant discount (55-
60%) to international coal prices.
Statement of Risk
Coal India is expanding capacity significantly; any delay in capacity expansion
will be a risk for the company. Another key risk for the company is wagon
availability from the Indian Railways. Introduction of mining tax profit or
increase in increase is likely to be another risk for the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Coal India
Coal India raises coal prices selectively
Coal price increases to generate additional Rs62bn in FY12 revenue
CI has increased coal prices which will help increase its revenues by
Rs6.5bn/Rs62bn in FY11/FY12. At 447mt of sale in FY12, this would imply 12%
increase in average coal prices over 9MFY11 ASP of Rs1,136/t. (We est 9% price
increase over FY11-13). However, CI has not been able to confirm price increases
across various grades and quantities on which it will be applicable.
Media reports indicate introduction of dual pricing
As per media reports 1) Power utilities, IPPs, fertiliser & defence sectors have been
exempt from price hikes except for consumers of MCL (Mahanadi Coalfields Ltd)
– all consumers of MCL (incl power utilities) will face c20% price increase
(Rs90/t) to bring it in line with South Eastern Coal Fields (SECL) – in FY10 MCL
sold 104mt. 2) A, B grade coal will be sold at 15% discount to global prices (7% of
total volumes) while 3) C-F grade will be higher by 30% for the non-core sector
Likely upside risk to our estimates; no clarity on further price hikes
We believe this is a positive step and will allay investor concerns on CI’s
profitability given recent concerns on volume growth and higher wage bill due to
increase in dearness allowance (49% vs 27.7% in Oct 09). We will revisit our
estimates as we get more clarity on current & future hikes (wage negotiations in
Jun ‘11) from CI. There is likely to be upside risks to our earnings though marginal
downside risk to volumes (447/470mt in FY12/FY13 vs guidance of 428/447mt)
Valuation: Maintain Buy and PT of Rs400
We continue to value CI using a target PE multiple (16.5x December 2012E EPS).
Coal India
Coal India is the largest coal company in the world (primarily thermal coal). The
government owns 90% of the company. It sells its entire output (415Mt in
FY10) in the domestic market. Coal India sells coal at a significant discount (55-
60%) to international coal prices.
Statement of Risk
Coal India is expanding capacity significantly; any delay in capacity expansion
will be a risk for the company. Another key risk for the company is wagon
availability from the Indian Railways. Introduction of mining tax profit or
increase in increase is likely to be another risk for the company.
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