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Inclement weather could impact Q2 volumes, COAL looks to make
it up in H2: COAL highlighted that inclement weather in Eastern India
in August has impacted both production and dispatches, which it looks
to make up in H2. While the company did not give any specifics on
volumes for Q2, last year dispatches stood at 99MT, and even factoring
in a strong September, we see volumes down 1-2% from Q1 levels.
Rake availability is not an issue so far as per COAL, with the Indian
Railways able to supply the rakes. Assuming off-take of 104MT in Q2,
it would imply H2 off-take of 245MT, implying 9% y/y growth.
COAL is confident of getting +200 rakes in order to achieve the
455MT target. The H2 target off-take is aggressive and leaves little
room for any misses. Given the slowdown in the economy and Karnatka
iron ore ban, we believe rake availability is likely to be adequate, and
off-takes would be a function of COAL's ability to move coal to sidings.
Wage cost update: The wage cost increase from July 1 would impact
the non executive segment, which is 85% of the wage bill. We are
building in a total wage cost increase of 19% in FY12E, which includes
the inflation impact and the wage agreement hike (the wage hike would
be applicable for three quarters in FY12E).
Are earnings really immune to a global crisis? The biggest attraction
cited by investors is the 'consumer'-like earnings nature of COAL with
5-6% volume growth and ASPs which are significantly lower than
market prices of coal. However, we would like to highlight that ~20-25%
of volumes and ~30-35% of revenues are on quasi market linked prices
(e-auction coal, coking coal, Grade A and B coal), and given the
economic scenario being priced in by equity markets globally, imply
some correction in these market prices, which can impact COAL's
earnings.
Remain UW with revised PT of Rs345: We increase our EPS estimates
by 5-4% on account of higher other income and a lower tax rate. We
retain our UW on COAL with a PT of Rs345 (based on 7x FY13E
EV/EBITDA). The Mining Bill in our view remains a key overhang on
the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Inclement weather could impact Q2 volumes, COAL looks to make
it up in H2: COAL highlighted that inclement weather in Eastern India
in August has impacted both production and dispatches, which it looks
to make up in H2. While the company did not give any specifics on
volumes for Q2, last year dispatches stood at 99MT, and even factoring
in a strong September, we see volumes down 1-2% from Q1 levels.
Rake availability is not an issue so far as per COAL, with the Indian
Railways able to supply the rakes. Assuming off-take of 104MT in Q2,
it would imply H2 off-take of 245MT, implying 9% y/y growth.
COAL is confident of getting +200 rakes in order to achieve the
455MT target. The H2 target off-take is aggressive and leaves little
room for any misses. Given the slowdown in the economy and Karnatka
iron ore ban, we believe rake availability is likely to be adequate, and
off-takes would be a function of COAL's ability to move coal to sidings.
Wage cost update: The wage cost increase from July 1 would impact
the non executive segment, which is 85% of the wage bill. We are
building in a total wage cost increase of 19% in FY12E, which includes
the inflation impact and the wage agreement hike (the wage hike would
be applicable for three quarters in FY12E).
Are earnings really immune to a global crisis? The biggest attraction
cited by investors is the 'consumer'-like earnings nature of COAL with
5-6% volume growth and ASPs which are significantly lower than
market prices of coal. However, we would like to highlight that ~20-25%
of volumes and ~30-35% of revenues are on quasi market linked prices
(e-auction coal, coking coal, Grade A and B coal), and given the
economic scenario being priced in by equity markets globally, imply
some correction in these market prices, which can impact COAL's
earnings.
Remain UW with revised PT of Rs345: We increase our EPS estimates
by 5-4% on account of higher other income and a lower tax rate. We
retain our UW on COAL with a PT of Rs345 (based on 7x FY13E
EV/EBITDA). The Mining Bill in our view remains a key overhang on
the stock.
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