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India Equity Research Reports, IPO and Stock News
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We raise our earnings estimates by 10% for FY12 and by 6% for FY13, due to robust
realisations as a result of differential pricing from the end of February, and higher e-auction
volumes and prices. We raise our target price to Rs345 from Rs315 and maintain Sell on rich
valuations
Increase in e-auction volumes drives 1QFY12 earnings
1QFY12 saw e-auction volumes rise to 14% (13.5Mt) against average of 8-12% from FY08-
FY11. This drove average realisation to Rs1,365/t, up 21% yoy and 4% qoq, thereby driving
earnings. E-auction realisations have also been robust with the premium over FSA coal
increasing from 59% to 90% yoy. Due to the build-up of inventory, the company has the Ministry
of Coal’s approval to sell up to 20% of MCL, CCL and BCCL production via e-auction despite the
10% restriction. However, we do not expect e-auction ratio to remain above 13% as we expect
logistical issues, the reason for the high inventory in the first place, to constrain off-take. We now
expect an FY12 e-auction volume ratio of 12-13% and, accordingly, raise average realisations.
Key annual report takeaways
Coal India may pay Rs55.6bn in gratuity payments to ECL and BCCL employees in FY12 as
the two subsidiaries turn around and report profits. Gratuity and leave encashment of
Rs10.2bn is recognised as a current liability on the balance sheet. In FY11, four washeries
with a total capacity of 30Mt were sanctioned during the year. We expect 20 washery facilities,
with a total capacity of 111Mt, to start up over 2013-2018.
Valuations remain rich; maintain Sell with new TP of Rs345
We raise our FY12/13F earnings by 10%/6% as we increase average FY12/13F realisations.
We note that a 1% increase in average realisation changes our FY12/13F estimates by
2.9%/3.1%. Management expects the mining bill to be implemented in two years and this could
impact earnings. If the bill is implemented and taxes levied on mining profits and subsequently
deducted, our fair value would fall to Rs310, all else being equal. We note that compared to the
FY13F global coal peer average of 5.4x EV/EBITDA, Coal India appears expensive at 8.1x. At
5.4x, our fair value estimate would fall to Rs290. Instead, on the back of our increased earnings
estimates, we raise our TP to Rs345 (from Rs315). Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We raise our earnings estimates by 10% for FY12 and by 6% for FY13, due to robust
realisations as a result of differential pricing from the end of February, and higher e-auction
volumes and prices. We raise our target price to Rs345 from Rs315 and maintain Sell on rich
valuations
Increase in e-auction volumes drives 1QFY12 earnings
1QFY12 saw e-auction volumes rise to 14% (13.5Mt) against average of 8-12% from FY08-
FY11. This drove average realisation to Rs1,365/t, up 21% yoy and 4% qoq, thereby driving
earnings. E-auction realisations have also been robust with the premium over FSA coal
increasing from 59% to 90% yoy. Due to the build-up of inventory, the company has the Ministry
of Coal’s approval to sell up to 20% of MCL, CCL and BCCL production via e-auction despite the
10% restriction. However, we do not expect e-auction ratio to remain above 13% as we expect
logistical issues, the reason for the high inventory in the first place, to constrain off-take. We now
expect an FY12 e-auction volume ratio of 12-13% and, accordingly, raise average realisations.
Key annual report takeaways
Coal India may pay Rs55.6bn in gratuity payments to ECL and BCCL employees in FY12 as
the two subsidiaries turn around and report profits. Gratuity and leave encashment of
Rs10.2bn is recognised as a current liability on the balance sheet. In FY11, four washeries
with a total capacity of 30Mt were sanctioned during the year. We expect 20 washery facilities,
with a total capacity of 111Mt, to start up over 2013-2018.
Valuations remain rich; maintain Sell with new TP of Rs345
We raise our FY12/13F earnings by 10%/6% as we increase average FY12/13F realisations.
We note that a 1% increase in average realisation changes our FY12/13F estimates by
2.9%/3.1%. Management expects the mining bill to be implemented in two years and this could
impact earnings. If the bill is implemented and taxes levied on mining profits and subsequently
deducted, our fair value would fall to Rs310, all else being equal. We note that compared to the
FY13F global coal peer average of 5.4x EV/EBITDA, Coal India appears expensive at 8.1x. At
5.4x, our fair value estimate would fall to Rs290. Instead, on the back of our increased earnings
estimates, we raise our TP to Rs345 (from Rs315). Sell.
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