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UBS Investment Research
Coal India
M isses YTD production target by 16mt
Event: misses YTD production due to rains; wagon availability reduces
(1) Coal India (CIL) achieved 93% of its production target in April-August.
Production was 152mt (versus target of 163mt). Production fell further short of the
target in September due to heavy rains (table below) leading to a YTD production
miss of 16mt (versus target). CIL achieved only 86% of its target in July-August
(56mt versus 65mt) versus 98% in 1QFY12. (2) Wagon/rake availability reduced
to less than 150 rakes/day in September (1QFY12—166 rakes/day) implying that
2QFY12 sales could be lower than street estimates.
Impact: CIL maintains FY12 production/sales est; hopes for H2 recovery
CIL had guided for 452mt production for FY12. It maintains its target as it hopes
to recover the shortfall in H2 post monsoons as coal excavation/railway wagon
availability improves. H2 is usually stronger in production/sales. CIL has guided
for 454mt (lower end)/477mt (upper end) of sales for FY12.
Action: maintain estimates; have been highlighting execution/wagon issues
As highlighted in our note, Asia on the Ground: India Coal Sector—What’s
happening on the execution side, published on 28 July 2011, we remain cautious
on CIL as: 1) progress on washeries is slow—only one out of 20 has been
contracted; 2) production/despatch target of 452mt/454mt for FY12 could
disappoint due to execution/wagon availability issues; 3) railway wagon ordering
was delayed—the government’s budget for 2012 had targeted 18,000 new wagons
but ordering did not happen till August; and 4) delay in starting wage negotiations.
We maintain our estimates (details below).
Valuation: maintain Neutral rating and price target of Rs400
We continue to value CIL on 15x FY13E PE.
Coal India
Coal India is the largest coal company in the world (primarily thermal coal). The
government owns 90% of the company. It sells its entire output (415Mt in
FY10) in the domestic market. Coal India sells coal at a significant discount (55-
60%) to international coal prices.
Statement of Risk
Coal India is a public sector enterprise and hence, may not be able to raise coal
prices in line with input costs (given inflation concerns), negatively impacting
earnings. Coal India is expanding capacity significantly; any delay in capacity is
likely to impact earnings. Valuation: We value Coal India on 15x FY13E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Coal India
M isses YTD production target by 16mt
Event: misses YTD production due to rains; wagon availability reduces
(1) Coal India (CIL) achieved 93% of its production target in April-August.
Production was 152mt (versus target of 163mt). Production fell further short of the
target in September due to heavy rains (table below) leading to a YTD production
miss of 16mt (versus target). CIL achieved only 86% of its target in July-August
(56mt versus 65mt) versus 98% in 1QFY12. (2) Wagon/rake availability reduced
to less than 150 rakes/day in September (1QFY12—166 rakes/day) implying that
2QFY12 sales could be lower than street estimates.
Impact: CIL maintains FY12 production/sales est; hopes for H2 recovery
CIL had guided for 452mt production for FY12. It maintains its target as it hopes
to recover the shortfall in H2 post monsoons as coal excavation/railway wagon
availability improves. H2 is usually stronger in production/sales. CIL has guided
for 454mt (lower end)/477mt (upper end) of sales for FY12.
Action: maintain estimates; have been highlighting execution/wagon issues
As highlighted in our note, Asia on the Ground: India Coal Sector—What’s
happening on the execution side, published on 28 July 2011, we remain cautious
on CIL as: 1) progress on washeries is slow—only one out of 20 has been
contracted; 2) production/despatch target of 452mt/454mt for FY12 could
disappoint due to execution/wagon availability issues; 3) railway wagon ordering
was delayed—the government’s budget for 2012 had targeted 18,000 new wagons
but ordering did not happen till August; and 4) delay in starting wage negotiations.
We maintain our estimates (details below).
Valuation: maintain Neutral rating and price target of Rs400
We continue to value CIL on 15x FY13E PE.
Coal India
Coal India is the largest coal company in the world (primarily thermal coal). The
government owns 90% of the company. It sells its entire output (415Mt in
FY10) in the domestic market. Coal India sells coal at a significant discount (55-
60%) to international coal prices.
Statement of Risk
Coal India is a public sector enterprise and hence, may not be able to raise coal
prices in line with input costs (given inflation concerns), negatively impacting
earnings. Coal India is expanding capacity significantly; any delay in capacity is
likely to impact earnings. Valuation: We value Coal India on 15x FY13E EPS.
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