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Coal India Ltd. (COAL.BO)
Neutral Equity Research
Takeaways from 1QFY12 conference call; price hike is key trigger
What's changed
Key takeaways from the 1QFY12 conference call held today: (1) Mgmt
reiterated its target of 452 mn tons for production and 454 mn tons for
offtake in FY12E; (2) these volumes are not contingent on any further
approvals from MoEF (CEPI, forest clearance, etc) or other clearances (like
land acquisition); (3) need average loading of 175 rakes/day for the year –
for 1QFY12 the company received 168 rakes/day (vs 154 in 1QFY11); (4) the
company has also set a target to liquidate 25 mn ton of coal from
inventory (of 69.5 mn ton) this year, of which 17.8 mn tons were liquidated
by July; (5) August has seen heavy rainfall in the eastern sector (impacting
5 subsidiaries) – the company hopes to make up for this loss in remaining
periods of the year; (6) 13.54 mn tons of coal were sold through the eauction route (12.7% of sales) at an average realisation of Rs2,245/ton (a
90% premium over average notified price of Rs1,188/ton); (7) beneficiated
coal sales amounted to 3.94 mn tons with average realisation of Rs
2,185/ton; and (8) the committee for wage negotiations has been
constituted and the first meeting is scheduled on Aug 20-21.
Implications
In our view, provisioning for wage hikes will start impacting earnings from
2QFY12E on, and upside from current levels could depend on the company’s
ability to raise notified coal prices sold to the power sector. In an inflationary
environment, we think this would be difficult to achieve.
Valuation
At 9.1X FY12E EV/EBITDA, the stock trades at a 35% premium to global
peers, which we believe is justified given stable cash flows and a strong
balance sheet. We fine-tune our FY12E-14E EPS and maintain our Neutral
rating, as well as our 12-month Director’s Cut-based target price of Rs405.
Key risks
Risks include logistics availability and regulatory trends.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Ltd. (COAL.BO)
Neutral Equity Research
Takeaways from 1QFY12 conference call; price hike is key trigger
What's changed
Key takeaways from the 1QFY12 conference call held today: (1) Mgmt
reiterated its target of 452 mn tons for production and 454 mn tons for
offtake in FY12E; (2) these volumes are not contingent on any further
approvals from MoEF (CEPI, forest clearance, etc) or other clearances (like
land acquisition); (3) need average loading of 175 rakes/day for the year –
for 1QFY12 the company received 168 rakes/day (vs 154 in 1QFY11); (4) the
company has also set a target to liquidate 25 mn ton of coal from
inventory (of 69.5 mn ton) this year, of which 17.8 mn tons were liquidated
by July; (5) August has seen heavy rainfall in the eastern sector (impacting
5 subsidiaries) – the company hopes to make up for this loss in remaining
periods of the year; (6) 13.54 mn tons of coal were sold through the eauction route (12.7% of sales) at an average realisation of Rs2,245/ton (a
90% premium over average notified price of Rs1,188/ton); (7) beneficiated
coal sales amounted to 3.94 mn tons with average realisation of Rs
2,185/ton; and (8) the committee for wage negotiations has been
constituted and the first meeting is scheduled on Aug 20-21.
Implications
In our view, provisioning for wage hikes will start impacting earnings from
2QFY12E on, and upside from current levels could depend on the company’s
ability to raise notified coal prices sold to the power sector. In an inflationary
environment, we think this would be difficult to achieve.
Valuation
At 9.1X FY12E EV/EBITDA, the stock trades at a 35% premium to global
peers, which we believe is justified given stable cash flows and a strong
balance sheet. We fine-tune our FY12E-14E EPS and maintain our Neutral
rating, as well as our 12-month Director’s Cut-based target price of Rs405.
Key risks
Risks include logistics availability and regulatory trends.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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