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● We went through the annual reports of CIL’s subsidiaries to
understand trends which get lost in consolidated analysis.
● Much against the trend for mining companies globally, and despite
rising strip ratios and substantial increases in costs of fuel, rubber
and steel, non-staff costs saw only a 3% CAGR over FY06-11. A
division-wise analysis shows a significant impact of rising
outsourcing and automation on rising profitability.
● There is significant variance in EBITDA/t across CIL subsidiaries:
the four largest (MCL, NCL, SECL and CCL) contribute 75% of
volumes, but are 87% of EBITDA, and show the lowest cost
increases. This provides opportunities—the big four are also
expected to drive most of the volume expansions going forward;
price increases are easier to justify in the inefficient ECL/ BCCL.
● With further outsourcing and automation, we believe there is a
significant scope for cost-driven EBITDA improvements in the
coming quarters/years. As mining costs, especially for thermal
coal, continue to rise globally, and CIL’s costs do not, headroom
for price increases will continue to expand. Even near-term, with
rains over, volume slippages should be behind us. We maintain
OUTPERFORM with a target price of Rs450. Full Report.
Our note, A deep dive shows significant operational gains, 29 Sep
2011, delves deep into the annual reports of CIL’s subsidiaries to
understand trends which get lost in consolidated analysis.
Large differences in profitability
Much, if not all, of the analysis of Coal India is at the consolidated level,
and in addition to volumes and prices, focuses on staff costs. This can
be misleading, as staff costs are only half the total and miss significant
improvement in non-staff costs at a time when mining costs are rising
globally. In this note we focus on the other half of costs using additional
disclosures available in the annual reports of CIL’s subsidiaries.
There is significant variance in EBITDA/t across CIL subsidiaries—
some of this is driven by realisations, but far more interestingly, there
are sharp differences in costs. In particular, cost increase per tonne
was insignificant in the four most profitable subsidiaries NCL, MCL,
CCL and SECL. These are together 75% of volumes. The profitability
drivers for each of these four subsidiaries are different, in our view: (1)
a better strip ratio, (2) more outsourcing, and (2) more automation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We went through the annual reports of CIL’s subsidiaries to
understand trends which get lost in consolidated analysis.
● Much against the trend for mining companies globally, and despite
rising strip ratios and substantial increases in costs of fuel, rubber
and steel, non-staff costs saw only a 3% CAGR over FY06-11. A
division-wise analysis shows a significant impact of rising
outsourcing and automation on rising profitability.
● There is significant variance in EBITDA/t across CIL subsidiaries:
the four largest (MCL, NCL, SECL and CCL) contribute 75% of
volumes, but are 87% of EBITDA, and show the lowest cost
increases. This provides opportunities—the big four are also
expected to drive most of the volume expansions going forward;
price increases are easier to justify in the inefficient ECL/ BCCL.
● With further outsourcing and automation, we believe there is a
significant scope for cost-driven EBITDA improvements in the
coming quarters/years. As mining costs, especially for thermal
coal, continue to rise globally, and CIL’s costs do not, headroom
for price increases will continue to expand. Even near-term, with
rains over, volume slippages should be behind us. We maintain
OUTPERFORM with a target price of Rs450. Full Report.
Our note, A deep dive shows significant operational gains, 29 Sep
2011, delves deep into the annual reports of CIL’s subsidiaries to
understand trends which get lost in consolidated analysis.
Large differences in profitability
Much, if not all, of the analysis of Coal India is at the consolidated level,
and in addition to volumes and prices, focuses on staff costs. This can
be misleading, as staff costs are only half the total and miss significant
improvement in non-staff costs at a time when mining costs are rising
globally. In this note we focus on the other half of costs using additional
disclosures available in the annual reports of CIL’s subsidiaries.
There is significant variance in EBITDA/t across CIL subsidiaries—
some of this is driven by realisations, but far more interestingly, there
are sharp differences in costs. In particular, cost increase per tonne
was insignificant in the four most profitable subsidiaries NCL, MCL,
CCL and SECL. These are together 75% of volumes. The profitability
drivers for each of these four subsidiaries are different, in our view: (1)
a better strip ratio, (2) more outsourcing, and (2) more automation.
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