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• We attended CIL's analyst
meeting
• Three key factors to monitor;
wage hikes, Mining Bill,
production guidance
• Outperform maintained
What's new
After attending Coal India’s (CIL)
analyst meeting (on 13 August 2011)
following the strong 1Q FY12 results
we remain positive on its ability to
improve offtake, but are still cautious
on its ability to meet its production
guidance.
What's the impact
1Q FY12 results buoyed by higher ASP
and improved offtake: CIL’s revenue
rose by 21.5% YoY and EBITDA/tonne
was Rs454, up 51.1% YoY, led by a
higher ASP (up 20.4% YoY), aided by
the full impact of the price increase of
February 2011, an improved mix of
market-linked sales (e-auction sales
were 12.3% of total offtake) and the
liquidation of 10m tonnes of inventory.
As a result, the PAT of Rs41.4bn (up
64% YoY) was 15% above our forecast
and that of the Bloomberg consensus.
CIL maintains volume guidance: CIL
remains confident of achieving its
FY12 guidance for production and
offtake of 452m tonnes and 454m
tonnes, respectively.
• Production. CIL cited the impact of
the summer months in 1Q FY12,
and 2Q FY12 will be affected by the
monsoons. However, CIL remains
confident of meeting its targets
with a significant ramp-up in 2H
FY12. We are less optimistic than
management as the asking rate has
moved up to 6% for 9M FY12.
Hence, we maintain our lower FY12
production forecast of 446m tonnes.
• Dispatches. CIL managed to
liquidate 17m tonnes of inventory
so far in FY12; it targets to de-stock
25m tonnes of inventory in total for
FY12, led mainly by improved
availability of rakes (165 rakes/day)
due to the ban on iron-ore exports
from India in 1Q FY12. We forecast
a rake availability of 175rakes/day
for FY12 on the back of regular railcoal
interface meetings.
Wage increases. CIL expects to close
wage-revision negotiations in six
months and will start provisioning for
these onwards of 2Q FY12 (it has
guided for Rs25bn of provisioning for
FY12). The first committee meeting is
scheduled for 20 August. Currently,
we forecast an 18% YoY increase in
employee expenses (accounting for
9M FY12 of the wage-hike impact) to
Rs214bn for FY12.
Three key factors to monitor for 9M
FY12. 1) Wage hikes; timelines for the
wage hikes and commensurate price
increases. 2) The implementation of
the Draft Mining Bill, which proposes
sharing 26% of mining profits with
the local population; management
expects about a 10% impact on
earnings and views it positively as it
will expedite the land-acquisition
process. 3) CIL’s ability to meet its
production guidance.
What we recommend
We remain positive on CIL as we
expect the pace of production to pick
up in FY13-14 to 5% YoY, a structural
improvement in dispatches due to
greater railway-rake availability and
clarity on price hikes after the
completion of wage negotiations in
FY13. We maintain our Outperform
(2) rating and DCF-based six-month
target price of Rs450. We see
inadequate evacuation infrastructure
as a key risk for CIL.
How we differ
The consensus forecasts offtake
growth of 4-5% YoY for FY12, while
we forecast an 8.5% YoY increase.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We attended CIL's analyst
meeting
• Three key factors to monitor;
wage hikes, Mining Bill,
production guidance
• Outperform maintained
What's new
After attending Coal India’s (CIL)
analyst meeting (on 13 August 2011)
following the strong 1Q FY12 results
we remain positive on its ability to
improve offtake, but are still cautious
on its ability to meet its production
guidance.
What's the impact
1Q FY12 results buoyed by higher ASP
and improved offtake: CIL’s revenue
rose by 21.5% YoY and EBITDA/tonne
was Rs454, up 51.1% YoY, led by a
higher ASP (up 20.4% YoY), aided by
the full impact of the price increase of
February 2011, an improved mix of
market-linked sales (e-auction sales
were 12.3% of total offtake) and the
liquidation of 10m tonnes of inventory.
As a result, the PAT of Rs41.4bn (up
64% YoY) was 15% above our forecast
and that of the Bloomberg consensus.
CIL maintains volume guidance: CIL
remains confident of achieving its
FY12 guidance for production and
offtake of 452m tonnes and 454m
tonnes, respectively.
• Production. CIL cited the impact of
the summer months in 1Q FY12,
and 2Q FY12 will be affected by the
monsoons. However, CIL remains
confident of meeting its targets
with a significant ramp-up in 2H
FY12. We are less optimistic than
management as the asking rate has
moved up to 6% for 9M FY12.
Hence, we maintain our lower FY12
production forecast of 446m tonnes.
• Dispatches. CIL managed to
liquidate 17m tonnes of inventory
so far in FY12; it targets to de-stock
25m tonnes of inventory in total for
FY12, led mainly by improved
availability of rakes (165 rakes/day)
due to the ban on iron-ore exports
from India in 1Q FY12. We forecast
a rake availability of 175rakes/day
for FY12 on the back of regular railcoal
interface meetings.
Wage increases. CIL expects to close
wage-revision negotiations in six
months and will start provisioning for
these onwards of 2Q FY12 (it has
guided for Rs25bn of provisioning for
FY12). The first committee meeting is
scheduled for 20 August. Currently,
we forecast an 18% YoY increase in
employee expenses (accounting for
9M FY12 of the wage-hike impact) to
Rs214bn for FY12.
Three key factors to monitor for 9M
FY12. 1) Wage hikes; timelines for the
wage hikes and commensurate price
increases. 2) The implementation of
the Draft Mining Bill, which proposes
sharing 26% of mining profits with
the local population; management
expects about a 10% impact on
earnings and views it positively as it
will expedite the land-acquisition
process. 3) CIL’s ability to meet its
production guidance.
What we recommend
We remain positive on CIL as we
expect the pace of production to pick
up in FY13-14 to 5% YoY, a structural
improvement in dispatches due to
greater railway-rake availability and
clarity on price hikes after the
completion of wage negotiations in
FY13. We maintain our Outperform
(2) rating and DCF-based six-month
target price of Rs450. We see
inadequate evacuation infrastructure
as a key risk for CIL.
How we differ
The consensus forecasts offtake
growth of 4-5% YoY for FY12, while
we forecast an 8.5% YoY increase.
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