Key watch-outs: Share of market-linked revenue, possible regulatory
headwinds
FY13 to be first year of volume bounceback
FSA deadlock untangling, financial impact not material
Washed coal, E-auction constitute 30% of sales, import parity discount provides cushion
Maintain Buy; MMDR bill, scope of coal regulator need to be watched
FY13 to be first year of volume bounce-back: Coal India's (COAL) April-July 2012
production/dispatch is up 5.3%/5% YoY. Internal target for production/dispatch stands
at 96/107m tons for 2QFY13, representing growth of 20%/15% YoY. If COAL attains
2QFY13 target, residual growth for 2HFY13 production/dispatch is only 2.3%/7.1% to
achieve FY13E target of 464/470m tons. Thus, there exists possibility of upward revision
in FY13 targets. Rake availability for all the months in FY13 has been higher YoY.
Environment clearance remains key challenge as clearance for 13 projects to increase
production by 25% would be considered on case-to-case basis and not on fast track,
which could have led to production increase of ~30m tons in the 12th Plan.
FSA deadlock easing, financial impact not material: The board of Coal India has approved
revised penalty structure with base penalty of 1.5% (trigger level of 65-80%) and peak
penalty of 40% (supply below 50%). We believe this is much better than earlier proposal
of 0.01% penalty (below 80%) with 3 years moratorium, and would have high
acceptance with developers. Given the option to import coal to meet any gap between
commitment and own production, we do not expect material impact of penalty on
COAL. Assuming it supplies 65% of coal from its own production and imports 15%, PAT
impact would be just 1% for FY13E, and near zero in FY14E/15E.
Washed coal/E-auction constitute ~30% of sales, import parity discount provides
cushion: In FY12, washed coal/E-auction coal volumes stood at 68m tons (16% of
dispatch), and sales at INR173b (~30% of total). Given softening coal prices, the upside
possibility is limited. However, we note that immediate impact would be on E-auction
(washed coal contracts are negotiated annually), but even here, 22% discount to
international prices provides cushion. We expect INR100/ton lower E-auction
realization to impact FY13E PAT by 1.5%.
Maintain Buy; MMDR bill, scope of coal regulator need to be watched: Over the last
12 months, we have seen several initiatives by management/government to address
the challenges facing COAL. Given this, the focus would now shift to improving
operational performance. However, MMDR Bill (providing for 26% profit sharing with
locals) and scope of expected coal regulator are key factors to watch out for. Buy.
1QFY13 Results: Coal India performance in-line
Market lined revenue lower, but FSA realization improves
1QFY13 PAT boosted by higher other income: Coal India reported PAT at INR44.7b
(up 8% YoY) higher than our estimate of INR42.9b led by higher other income at
INR20.7b v/s our est of INR19b. Revenues stood at INR165b (up 14% YoY), lower
than our estimate of INR168b led by lower market linked sales. However EBITDA
for the company stood at INR48b (flat YoY) in-line with our estimate of INR48.1b
led by lower than estimated staff cost and OBR provisioning. The benefit was
partly negated by higher cost of inventory, other expenditure.
Market lined revenue lower, but FSA realization improves: During the quarter
vis-à-vis our estimates market linked revenues were lower by INR9b led by lower
E-Auction realization at INR2,562/ton (v/s estimate of INR3,000/ton) and lower EAuction
volume at 13.5m tons (v/s estimate of 15m tons). However FSA revenues
stood at INR120.2b, v/s estimate of INR114.5b led by higher realization at INR1,261/
ton v/s our estimate of INR1,206/ton.
Operational performance improved in 1Q, rail dispatch up 11% YoY: During the
quarter production and offtake for the company stood at 102m tons (up 6.4% YoY)
and 113m tons (up 6.4% YoY). In 1QFY13, the dispatches through rail has been
higher by 11% YoY, as rakes availability improved to 177 rakes/day v/s 164 rakes/
day YoY. Also, the July 2012 month production/dispatch have been at 31.8 / 36.2 m
tons and Coal India targets production/dispatches of 96 / 107m tons during 2QFY13.
Owing to possible delta in 2QFY13E, we thus revise our FY13E production / dispatch
numbers at 468 / 470m tons (vs earlier 462/464m tons).
Valuations and view, maintain estimate: We maintain our earnings estimate for
Coal India, as gain from higher volumes, FSA realization and other income is
negated by ~INR370/ton lower E-auction realization now. We expect Coal India to
report consolidated PAT of INR178b in FY13E (up 11% YoY) and INR192b in FY14E
(up 8% YoY).
No comments:
Post a Comment