Coal India - Creeping realisations; company update; Buy ::Edelweiss, PDF link

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Coal India (COAL IN, INR 320, Buy)

Coal India (CIL), in the analyst meet organised to discuss Q4FY12 result, has guided for 6.5% and 8.5% YoY production and sales volume growth, respectively, in FY13 on back of clearances obtained, measures to mitigate monsoon impact and improved rakes availability. While it ruled out a price hike in the near term, current realisations are higher than our estimates with further increase expected in the near future. We believe this is led by shift to GCV-based pricing and changing product mix. We have realigned our estimates to factor in the realisation surge, continuation of OBR charges and increase in employee cost, resulting in 9.4% and 9.2% downward revision in FY13 and FY14 earnings, respectively. With a revised TP of INR410 (INR430 earlier) we maintain ‘BUY’.  

Realisations jump despite no formal price hike

Adjusting for ~INR10bn volume-linked incentives, Q4FY12 blended realisations rose 7.7% QoQ to INR1,500/t due to shift to GCV-based pricing and changing product mix. With the proposed pricing adjustments in WCL and ECL coal mines, realisations are expected to inch up further in FY13. Accordingly, we have revised up our FY13E and FY14E realisations 5.2% and 5.5%, respectively.

CIL confident of volume surge and containing costs

CIL expects production to increase to 464mt (FY12:436mt) and sales of 470mt in FY13E (FY12:433mt); our revised estimates for both are 450mt. The volume increase and realization creep are expected to absorb the operating cost rise of 5.5% YoY in FY13E.

Outlook and valuations: Attractive; maintain ‘BUY’

CIL expects no adverse impact of penalty clauses and coal import possibilities under the new FSA regime. Dividend/share is expected to remain high at ~INR10 compared to INR3.9 in FY11. Our revised assumptions lead to 9.4% and 9.2%downward revision in FY13E and FY14E earnings, respectively. We retain ‘BUY/Sector Outperformer’ with a DCF-based revised price target of INR410 (INR430 earlier).

Coal India - Creeping realisations; company update; Buy

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