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Coal India Neutral
COAL.BO, COAL IN
FY12E MoU off take target based on sharp increase in
rail movement (13% v/s average of 2% over last 3 years)
• COAL production, off take target broadly in line with JPM
estimates: As per the MOU signed by Coal India with the ministry, the
FY12 production and despatches target of 452MT and 454MT
respectively are marginally ahead of what COAL had been indicating
over the last few months, and broadly in line with JPM estimates (prod
of 457MT, off-take of 451MT). Given the recent CEPI related issues,
management had indicated production of 446MT in FY12, and to that
extent the MoU production target of 452MT is ahead.
• Rake availability remains key to achieve the offtake target:
Railways accounts for ~47% of coal movement for CIL. COAL’s
FY12 target offtake volumes are based on the increase in the rake
availability from an average of 162 rakes per day in FY11 to nearly
175 rakes in FY12. Last 2 years, the growth in rake availability has been
less than 5 rakes per day every year. As per the MOU signed for FY11
target, the estiamted rake availability was pegged at 185 rakes per day
and the actual availability has been 12% below this target (~162 rakes).
Coal movement growth through rail has been ~2% over the last
three years while COAL has highlighted that to achieve its MoU
target for FY12E, coal transportation by rail has to grow by 13.5%
in FY12E. This in our view raises questions on whether the FY12E
off take target can be achieved if the railway rake availability again
becomes an issue. While Coal India highlighted high-level interactions
with Railways (under current rules of railways, users in the coal sector
cannot order their own wagons) to have a longer-term solution, we are
yet to see any solutions to the logistic bottlenecks of coal movement in
India. Longer term we need to see a step up in rake availability from
current levels or COAL allowed to set up its own railway infrastructure
in order to achieve 6-7% long term off take growth.
• Next few events to watch out for: While the FY12E targets have now
been set (FY11E would likely be even below the revised targets), the
next few key events are-a) FY13E production and off take targets; b)
Wage provisions made from July-11; c) coal price hikes taken to off set
the above wage provisions. The stock has seen a sharp run up post the
coal price increases, but has been soft recently. At current valuations of
15.6x FY12E P/E (we are 5% ahead of consensus estimates), COAL is
not cheap and the positive catalysts of a) coal price increases and b)
Environment related positives news flows has largely played out. While
we do not dispute the multi year long term structural story of COAL,
near term valuations are rich and for investors with a shorter investment
horizon, we would recommend taking some money off the table at
current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Neutral
COAL.BO, COAL IN
FY12E MoU off take target based on sharp increase in
rail movement (13% v/s average of 2% over last 3 years)
• COAL production, off take target broadly in line with JPM
estimates: As per the MOU signed by Coal India with the ministry, the
FY12 production and despatches target of 452MT and 454MT
respectively are marginally ahead of what COAL had been indicating
over the last few months, and broadly in line with JPM estimates (prod
of 457MT, off-take of 451MT). Given the recent CEPI related issues,
management had indicated production of 446MT in FY12, and to that
extent the MoU production target of 452MT is ahead.
Railways accounts for ~47% of coal movement for CIL. COAL’s
FY12 target offtake volumes are based on the increase in the rake
availability from an average of 162 rakes per day in FY11 to nearly
175 rakes in FY12. Last 2 years, the growth in rake availability has been
less than 5 rakes per day every year. As per the MOU signed for FY11
target, the estiamted rake availability was pegged at 185 rakes per day
and the actual availability has been 12% below this target (~162 rakes).
Coal movement growth through rail has been ~2% over the last
three years while COAL has highlighted that to achieve its MoU
target for FY12E, coal transportation by rail has to grow by 13.5%
in FY12E. This in our view raises questions on whether the FY12E
off take target can be achieved if the railway rake availability again
becomes an issue. While Coal India highlighted high-level interactions
with Railways (under current rules of railways, users in the coal sector
cannot order their own wagons) to have a longer-term solution, we are
yet to see any solutions to the logistic bottlenecks of coal movement in
India. Longer term we need to see a step up in rake availability from
current levels or COAL allowed to set up its own railway infrastructure
in order to achieve 6-7% long term off take growth.
• Next few events to watch out for: While the FY12E targets have now
been set (FY11E would likely be even below the revised targets), the
next few key events are-a) FY13E production and off take targets; b)
Wage provisions made from July-11; c) coal price hikes taken to off set
the above wage provisions. The stock has seen a sharp run up post the
coal price increases, but has been soft recently. At current valuations of
15.6x FY12E P/E (we are 5% ahead of consensus estimates), COAL is
not cheap and the positive catalysts of a) coal price increases and b)
Environment related positives news flows has largely played out. While
we do not dispute the multi year long term structural story of COAL,
near term valuations are rich and for investors with a shorter investment
horizon, we would recommend taking some money off the table at
current levels.
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