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Coal India (COAL)
Metals & Mining
Spot coal remains firm, wage provisions contained. Coal India Ltd (CIL) continues
to report improved realizations (Rs1,403/ton in 2QFY12) aided by e-auction sales which
now command a 100% premium over notified prices. Provision for wage increases was
contained (+17% qoq), partially allaying concerns of an exorbitant revision in the ongoing
negotiation process. We maintain our ADD rating with a revised PT of Rs420
(Rs454 previously) factoring production slippages due to mine development constraints.
Improved realizations, lower wage increase compensate for lower volumes
CIL reported net sales of Rs131.5 bn (19% yoy, -9% qoq), operating profit of Rs24.8 bn (38%
yoy, -49% qoq) and net income of Rs25.8 bn (67% yoy, -38% qoq) against our estimate of Rs132
bn, Rs24.9 bn and Rs25.1 bn, respectively. Volumes miss (94 mn tons against our estimate of 99
mn tons) was compensated by (1) higher-than-estimated realizations (Rs1,403/ton against our
estimate of Rs1,340/ton) and (2) lower provisioning for wage revisions resulting in lower-thanestimated
employee expense of Rs57 bn against our estimate of Rs58 bn yielding in-line operating
profits.
E-auction continues to drive robust realizations
CIL continued to deliver robust realizations (+3% qoq) aided by continued premium for e-auction
sales—realizations through e-auction improved 8% qoq with the premium over notified prices
now at 100%. Management remains confident that diversion of e-auction coal for sale to power
sector would be restricted to the month of October only, though we remain concerned given the
ever-widening supply gap. Exhibit 6 details the sales mix and realizations for CIL.
Wage provisioning contained, 17% sequential growth in employee cost
Employee cost for 2QFY12 increased to Rs56.9 bn (24% yoy, 17% qoq) lending some credence to
a contained wage revision in the ongoing negotiation process. We further highlight that welfare
expenses (earlier classified as social overheads) have been significantly reduced to Rs3.4 bn (-53%
yoy, 15% qoq)—a trend seen over the last two quarters.
Maintain ADD with a revised target price of Rs420/share
We maintain our ADD rating with a revised target price of Rs420/share (previously Rs454/share).
Our target price is based on 12.5X FY2013E EPS adjusted for overburden removal and interest
income and implies an EV/EBITDA of 8.5X on FY2013E EBITDA (adjusted for overburden removal).
CIL currently trades at 8X FY2013E EPS (adjusted) and 6X FY2013E EBITDA (adjusted). We have
revised our earning estimate by 5%/6.6% in FY2012E/13E to factor higher premium for e-auction
sales, offset off by lower volumes (440 mn tons against 450 mn tons previously).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India (COAL)
Metals & Mining
Spot coal remains firm, wage provisions contained. Coal India Ltd (CIL) continues
to report improved realizations (Rs1,403/ton in 2QFY12) aided by e-auction sales which
now command a 100% premium over notified prices. Provision for wage increases was
contained (+17% qoq), partially allaying concerns of an exorbitant revision in the ongoing
negotiation process. We maintain our ADD rating with a revised PT of Rs420
(Rs454 previously) factoring production slippages due to mine development constraints.
Improved realizations, lower wage increase compensate for lower volumes
CIL reported net sales of Rs131.5 bn (19% yoy, -9% qoq), operating profit of Rs24.8 bn (38%
yoy, -49% qoq) and net income of Rs25.8 bn (67% yoy, -38% qoq) against our estimate of Rs132
bn, Rs24.9 bn and Rs25.1 bn, respectively. Volumes miss (94 mn tons against our estimate of 99
mn tons) was compensated by (1) higher-than-estimated realizations (Rs1,403/ton against our
estimate of Rs1,340/ton) and (2) lower provisioning for wage revisions resulting in lower-thanestimated
employee expense of Rs57 bn against our estimate of Rs58 bn yielding in-line operating
profits.
E-auction continues to drive robust realizations
CIL continued to deliver robust realizations (+3% qoq) aided by continued premium for e-auction
sales—realizations through e-auction improved 8% qoq with the premium over notified prices
now at 100%. Management remains confident that diversion of e-auction coal for sale to power
sector would be restricted to the month of October only, though we remain concerned given the
ever-widening supply gap. Exhibit 6 details the sales mix and realizations for CIL.
Wage provisioning contained, 17% sequential growth in employee cost
Employee cost for 2QFY12 increased to Rs56.9 bn (24% yoy, 17% qoq) lending some credence to
a contained wage revision in the ongoing negotiation process. We further highlight that welfare
expenses (earlier classified as social overheads) have been significantly reduced to Rs3.4 bn (-53%
yoy, 15% qoq)—a trend seen over the last two quarters.
Maintain ADD with a revised target price of Rs420/share
We maintain our ADD rating with a revised target price of Rs420/share (previously Rs454/share).
Our target price is based on 12.5X FY2013E EPS adjusted for overburden removal and interest
income and implies an EV/EBITDA of 8.5X on FY2013E EBITDA (adjusted for overburden removal).
CIL currently trades at 8X FY2013E EPS (adjusted) and 6X FY2013E EBITDA (adjusted). We have
revised our earning estimate by 5%/6.6% in FY2012E/13E to factor higher premium for e-auction
sales, offset off by lower volumes (440 mn tons against 450 mn tons previously).
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