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Annual report analysis
Key highlights from Coal India’s (CIL) FY11 annual report (AR) are – 1) OCF
and FCF dropped YoY despite higher profits due to a large increase in working
capital, 2) Quality of coal and law & order seem to be factors impacting coal
despatches in addition to logistical constraints, 3) 35% of CIL’s ongoing
projects are delayed, mostly due to land acquisition issues, 4) CIL is focused
on setting up coal washeries and is also looking for diversification
opportunities in related areas including power generation. There is no
discussion on many crucial issues – status of ‘Go-No go’, rake availability,
future price hikes, likely extent of wage hike, risk to e-auctions etc. O-PF.
CIL’s cash pile continues to rise
In FY11, CIL’s OCF fell 36% YoY despite 13% higher profits due to sharp increase
in working capital (higher debtors, inventories, loans & advances). FCF also fell
40% YoY but was a strong US$1.7bn in absolute terms. CIL’s net cash position
expanded further to US$9.8bn in FY11 (US$8.2bn in FY10). In the absence of a
special dividend/large acquisition, cash should rise further to US$16bn by FY13.
Coal quality and law & order impacting coal despatches as well
The AR mentions that some of CIL’s subsidiaries (CCL & MCL) missed their
despatch targets in FY11 due to non-acceptance of coal by end-users due to
quality issues. We note that quality of coal was an issue that was raised by all
end-users in an inter-ministerial meeting in June-11. CIL seems to be taking note
of this and has initiated steps to improve coal quality – usage of surface miners,
expansion of crushing capacity etc. Law & order is also mentioned as being a
factor impacting coal despatches. We highlight this since the common perception
is that rake availability is the only factor impacting CIL’s despatch targets.
Land acquisition main reason for project delays; focus on coal washeries
Out of 117 ongoing mining projects, 41 (35%) are delayed with land acquisition
being cited as the reason in 59% of delayed projects. CIL will set up 20 new
washeries with capacity of 111mt. Tenders for 3 washeries with capacity of 20mt
have already been awarded. We don’t expect these to get commissioned before
FY14. There are also plans to develop abandoned and underground mines under
joint ventures with global mining companies or on turnkey contract basis.
CIL is looking for diversification opportunities in related areas incl power
The AR mentions that CIL is looking for diversification opportunities in the areas of
Coal Bed Methane, Coal Gasification, Coal Liquefaction and Power Generation. We
believe that these are long-term ambitions and are unlikely to fructify in the nearterm.
We continue to like CIL given strong earnings growth in FY12 and lower risk
to FY12-13 earnings as compared to sector peers. Maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Annual report analysis
Key highlights from Coal India’s (CIL) FY11 annual report (AR) are – 1) OCF
and FCF dropped YoY despite higher profits due to a large increase in working
capital, 2) Quality of coal and law & order seem to be factors impacting coal
despatches in addition to logistical constraints, 3) 35% of CIL’s ongoing
projects are delayed, mostly due to land acquisition issues, 4) CIL is focused
on setting up coal washeries and is also looking for diversification
opportunities in related areas including power generation. There is no
discussion on many crucial issues – status of ‘Go-No go’, rake availability,
future price hikes, likely extent of wage hike, risk to e-auctions etc. O-PF.
CIL’s cash pile continues to rise
In FY11, CIL’s OCF fell 36% YoY despite 13% higher profits due to sharp increase
in working capital (higher debtors, inventories, loans & advances). FCF also fell
40% YoY but was a strong US$1.7bn in absolute terms. CIL’s net cash position
expanded further to US$9.8bn in FY11 (US$8.2bn in FY10). In the absence of a
special dividend/large acquisition, cash should rise further to US$16bn by FY13.
Coal quality and law & order impacting coal despatches as well
The AR mentions that some of CIL’s subsidiaries (CCL & MCL) missed their
despatch targets in FY11 due to non-acceptance of coal by end-users due to
quality issues. We note that quality of coal was an issue that was raised by all
end-users in an inter-ministerial meeting in June-11. CIL seems to be taking note
of this and has initiated steps to improve coal quality – usage of surface miners,
expansion of crushing capacity etc. Law & order is also mentioned as being a
factor impacting coal despatches. We highlight this since the common perception
is that rake availability is the only factor impacting CIL’s despatch targets.
Land acquisition main reason for project delays; focus on coal washeries
Out of 117 ongoing mining projects, 41 (35%) are delayed with land acquisition
being cited as the reason in 59% of delayed projects. CIL will set up 20 new
washeries with capacity of 111mt. Tenders for 3 washeries with capacity of 20mt
have already been awarded. We don’t expect these to get commissioned before
FY14. There are also plans to develop abandoned and underground mines under
joint ventures with global mining companies or on turnkey contract basis.
CIL is looking for diversification opportunities in related areas incl power
The AR mentions that CIL is looking for diversification opportunities in the areas of
Coal Bed Methane, Coal Gasification, Coal Liquefaction and Power Generation. We
believe that these are long-term ambitions and are unlikely to fructify in the nearterm.
We continue to like CIL given strong earnings growth in FY12 and lower risk
to FY12-13 earnings as compared to sector peers. Maintain O-PF.
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