Coal India -Price Pooling – ‘In-principle’ Approval  :: Citi Research

Coal India (COAL.BO)
Alert: Price Pooling – ‘In-principle’ Approval
 In-principle approval — According to press reports (Economic Times, 6 Feb), the
government has given 'in-principle’ approval for pooling prices of imported and
domestic coal. The Ministries of Power and Coal are expected to revert to the CCEA
(Cabinet Committee on Economic Affairs) with specific provisions. Some of the
reported proposals made by the Coal Ministry are: 1) pooling should be applicable to
plants set up before 31 March 2009; 2) imported coal to be supplied to coastal plants.
 No clarity yet — Discussions around price pooling have been on-going since
June/July 2012 and it has been opposed by some states. We lack clarity on the
timing and around certain issues including: 1) impact on varying grades of coal; 2) if
imports would be directed to coastal plants only; 3) impact on plants commissioned
before and after 31 March 2009; 4) whether Coal India (CIL) will sign back-to-back
contracts with customers for imported coal (and the modalities). If CIL signs back-toback
contracts, we expect the impact of pooling on CIL to be largely neutral.
 CIL Board had approved imports on a cost-plus basis — CIL’s Board approved
the modified FSAs (Fuel Supply Agreements) in September 2012 to supply 80% of
the committed quantity – 65% domestic coal and 15% imported coal on a cost-plus
basis to power plants commissioned after 31 March 2009. Our analysis suggests
that if 80% of the power plants (issued Letters of Assurance) sign PPAs, CIL should
be able to supply between 65%-70% of the committed quantity. Link to our note:
Revised Penalty; Negligible Impact.
 Reiterate Buy — CIL is relatively insulated from global price trends, with improving
volumes (despatches up 8% yoy during April 2012 and January 2013 after two
years of muted growth) and odds favoring faster clearances. The stock trades at
10.4x FY14E PE (excl. OBR adj.) vs. Asian peers’ on 10x-13x. It has
underperformed the Sensex by 5% in the last three months. We reiterate our Buy
rating and Rs400 target price on Coal India.

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