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Strong 1Q results
Coal India (CIL) reported a strong 64% rise in 1Q net profit – 12% above
estimates – boosted by 5% YoY growth in despatches, higher ASPs and high
financial income. Performance on all operating metrics was good. We expect
margins to come off slightly in balance FY12 as the wage hike provisions kick
in from 2Q. Management commentary in the analyst meet was positive on
rake availability and despatches but was a tad cautious on production due to
delays in getting approvals. We maintain estimates and O-PF rating and view
CIL as a good defensive in a sector fraught with global risks.
Strong 1Q results; net profit rises 64% YoY
Coal India’s production grew just 1% YoY in 1Q but despatches rose a higher 5%
as the company achieved a 15% liquidation of its coal stock. The full benefit of the
Feb-11 price hike came through in 1Q due to which ASPs rose 21% YoY to
Rs1365/t (US$30/t) driving a 27% YoY rise in revenues. Mining costs were up just
13% YoY to Rs300/t (US$7/t) while total operating costs (incl staff and OBR
adjustment) rose 9% YoY to Rs911/t (US$20/t). 1Q EBITDA/t was at Rs454/t
(US$10/t) – up a strong 52% YoY. As a result, 1Q EBITDA at Rs48.2bn grew 60%
YoY – 3% above estimates while net profit rose 64% YoY – 12% above estimates.
The net profit beat was higher than the EBITDA beat due to higher other income.
Positive outlook on despatches; production outlook cautious
Coal India is focussing on improving offtake and liquidating its coal stocks in FY12.
The Indian Railways (IR) is much more responsive to Coal India’s needs this year
and rake availability has improved 7% YoY in 1Q. CIL and IR are in daily contact
to ensure that rake availability is ensured. IR is adding more wagons and rakes
while CIL has increased coal stocks at sidings and has cut loading time to improve
despatches. CIL is targeting a minimum of 454mt of coal despatches in FY12 (we
assume 449mt). Production, however, is running below target thanks to delays in
approvals and weather related issues. While some of CIL’s larger coalfields are out
of the CEPI moratorium, the approval process has just re-started and any
improvement in production is not likely till FY13.
No near-term price hike; maintain estimates and O-PF rating
CIL will commence negotiations with unions on the wage hike soon and will take a
call on another price hike only by FY12-end when clarity on the wage hike
improves. Provisioning for the same will start in 2Q. CIL is confident of
maintaining 10-12% of its sales via e-auctions. We believe that risk to CIL’s
earnings is relatively low in the Indian Metal & Mining sector given its monopolistic
position in a supply-deficit market and the fact that its selling prices are much
below global prices. We maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong 1Q results
Coal India (CIL) reported a strong 64% rise in 1Q net profit – 12% above
estimates – boosted by 5% YoY growth in despatches, higher ASPs and high
financial income. Performance on all operating metrics was good. We expect
margins to come off slightly in balance FY12 as the wage hike provisions kick
in from 2Q. Management commentary in the analyst meet was positive on
rake availability and despatches but was a tad cautious on production due to
delays in getting approvals. We maintain estimates and O-PF rating and view
CIL as a good defensive in a sector fraught with global risks.
Strong 1Q results; net profit rises 64% YoY
Coal India’s production grew just 1% YoY in 1Q but despatches rose a higher 5%
as the company achieved a 15% liquidation of its coal stock. The full benefit of the
Feb-11 price hike came through in 1Q due to which ASPs rose 21% YoY to
Rs1365/t (US$30/t) driving a 27% YoY rise in revenues. Mining costs were up just
13% YoY to Rs300/t (US$7/t) while total operating costs (incl staff and OBR
adjustment) rose 9% YoY to Rs911/t (US$20/t). 1Q EBITDA/t was at Rs454/t
(US$10/t) – up a strong 52% YoY. As a result, 1Q EBITDA at Rs48.2bn grew 60%
YoY – 3% above estimates while net profit rose 64% YoY – 12% above estimates.
The net profit beat was higher than the EBITDA beat due to higher other income.
Positive outlook on despatches; production outlook cautious
Coal India is focussing on improving offtake and liquidating its coal stocks in FY12.
The Indian Railways (IR) is much more responsive to Coal India’s needs this year
and rake availability has improved 7% YoY in 1Q. CIL and IR are in daily contact
to ensure that rake availability is ensured. IR is adding more wagons and rakes
while CIL has increased coal stocks at sidings and has cut loading time to improve
despatches. CIL is targeting a minimum of 454mt of coal despatches in FY12 (we
assume 449mt). Production, however, is running below target thanks to delays in
approvals and weather related issues. While some of CIL’s larger coalfields are out
of the CEPI moratorium, the approval process has just re-started and any
improvement in production is not likely till FY13.
No near-term price hike; maintain estimates and O-PF rating
CIL will commence negotiations with unions on the wage hike soon and will take a
call on another price hike only by FY12-end when clarity on the wage hike
improves. Provisioning for the same will start in 2Q. CIL is confident of
maintaining 10-12% of its sales via e-auctions. We believe that risk to CIL’s
earnings is relatively low in the Indian Metal & Mining sector given its monopolistic
position in a supply-deficit market and the fact that its selling prices are much
below global prices. We maintain O-PF.
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