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Coal India Underweight
COAL.BO, COAL IN
Analyzing projects of COAL indicates, MCL is the
biggest problem; Production growth requires resolving
multiple issues
Emergency Coal production plan- many key projects still some time away:
The Ministry of Coal (MoC) Outcome Budget highlights that the COAL has
identified 16 opencast projects/mines (3 in CCL, 6 in NCL, 3 in SECL, 4 in
MCL) where production from existing mines/projects can be increased by
71.3MT. Analyzing the detailed projects wise break up, ~31MT is from MCL,
while 20 from SECL and 15 from CCL. We find it worrying that 3 of the 4
MCL projects have not even got Stage 1 forest clearance. For the other large
projects like 10MT Gevra in SECL, while EC was obtained in June-09 and
required forest land has been acquired, the PR is still in progress, while for the
8MT Magadh CCL project, even after obtaining EC in Oct-08, land and R&R
activities are still under progress (Please see detailed table on page 3 and 4).
Status on ongoing projects (above Rs1bn), MCL remains key for growth:
Of the 48 projects with total sanctioned capacity of 306MT, FY11E production
is estimated at c.165MT, with SECL accounting for ~50% of this. 2 key subs,
MCL (coal fields mostly in Orissa) and SECL (mostly Chhattisgarh) account
for c.60% of the sanctioned capacity. The key to COAL’s production growth
over the next 2-3 years remains MCL where of the 107MT sanctioned
capacity and FY11E production is estimated at ~32MT. Interestingly CEPI
has been cited as a delay in only 1 large project. Most of the MCL projects
have cited- R&R delays, land acquisition delays (for example in the 20MT
Bhubaneswar project, Stage 2 had been received in 2004 but R&R has
been delayed) and lastly lack of stage ‘1/2’forest clearance. From here, while
we model in ~55MT production growth over FY13-14E, we believe current
ongoing projects, particularly in MCL require large progress for the above
production growth to be realized.
Mining bill- clarity some time away but 26% profit sharing clause to
remain an overhang: As we had highlighted in our report (Link to report),
worst case EPS impact on COAL is 15%, however there is lack of clarity on
multiple issues, like how much would be passed on, whether there would be offsets
available. We continue to see ‘policy uncertainty’ to weigh on current
multiples. In the near term while Q1 results are expected to be very strong, wage
costs would increase from Q2, without any likely price increase. Our recent
industry checks indicate that even though rake availability has increased,
dispatch growth has been lower than estimates. We remain UW on COAL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India Underweight
COAL.BO, COAL IN
Analyzing projects of COAL indicates, MCL is the
biggest problem; Production growth requires resolving
multiple issues
Emergency Coal production plan- many key projects still some time away:
The Ministry of Coal (MoC) Outcome Budget highlights that the COAL has
identified 16 opencast projects/mines (3 in CCL, 6 in NCL, 3 in SECL, 4 in
MCL) where production from existing mines/projects can be increased by
71.3MT. Analyzing the detailed projects wise break up, ~31MT is from MCL,
while 20 from SECL and 15 from CCL. We find it worrying that 3 of the 4
MCL projects have not even got Stage 1 forest clearance. For the other large
projects like 10MT Gevra in SECL, while EC was obtained in June-09 and
required forest land has been acquired, the PR is still in progress, while for the
8MT Magadh CCL project, even after obtaining EC in Oct-08, land and R&R
activities are still under progress (Please see detailed table on page 3 and 4).
Status on ongoing projects (above Rs1bn), MCL remains key for growth:
Of the 48 projects with total sanctioned capacity of 306MT, FY11E production
is estimated at c.165MT, with SECL accounting for ~50% of this. 2 key subs,
MCL (coal fields mostly in Orissa) and SECL (mostly Chhattisgarh) account
for c.60% of the sanctioned capacity. The key to COAL’s production growth
over the next 2-3 years remains MCL where of the 107MT sanctioned
capacity and FY11E production is estimated at ~32MT. Interestingly CEPI
has been cited as a delay in only 1 large project. Most of the MCL projects
have cited- R&R delays, land acquisition delays (for example in the 20MT
Bhubaneswar project, Stage 2 had been received in 2004 but R&R has
been delayed) and lastly lack of stage ‘1/2’forest clearance. From here, while
we model in ~55MT production growth over FY13-14E, we believe current
ongoing projects, particularly in MCL require large progress for the above
production growth to be realized.
Mining bill- clarity some time away but 26% profit sharing clause to
remain an overhang: As we had highlighted in our report (Link to report),
worst case EPS impact on COAL is 15%, however there is lack of clarity on
multiple issues, like how much would be passed on, whether there would be offsets
available. We continue to see ‘policy uncertainty’ to weigh on current
multiples. In the near term while Q1 results are expected to be very strong, wage
costs would increase from Q2, without any likely price increase. Our recent
industry checks indicate that even though rake availability has increased,
dispatch growth has been lower than estimates. We remain UW on COAL.
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