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Published on 20/03/2018 2:49:48 PM | Source: Emkay Global Financial Services Ltd

Buy Coal India Ltd For Target Rs.359.00 - Emkay

* Revenue stood at Rs216bn (+6%/+19% yoy/qoq) below our estimates primarily due to lower than expected realization in FSA. FSA realization came in at Rs 1182/tn (-8%/-3% yoy/qoq) while e-auction realization came in strong at Rs 1998/tn (+28%/+24% yoy/qoq).

* EBITDA came in line with estimates at Rs 46bn (+20%/+275% yoy/qoq). EBITD/tn stood at Rs364/tn (+11%yoy). Overburden removal adjustment stood at Rs61/tn (+6%yoy) while overall cost/tn remains stable at Rs1178/tn.

* PAT stood at Rs30bn (+4%yoy). Employee benefit expense included ad hoc provision of Rs678 mn towards pay revision of the executive employees. During the quarter; government disinvested 0.31% share capital post which GOI’s now holds 78.546%.

* We believe, dispatch growth will continue to be strong to match up demand requirement of IPP along with due supply of non- power companies which CIL could not deliver in last few months. Valuation still looks attractive. Maintain BUY with a TP of Rs359.

Subdued FSA realization led to marginal decline in performance

FSA dispatch came strong at 122mt (+8%yoy / +16% qoq), also e-auction volume came in better than expected at 26mt (+5%yoy / +13%qoq). Total washed coal dispatch stood at 2.8mt (-19%yoy / -2% qoq). Total dispatch rises by 7%yoy to 152mt and 8%ytd to 421mt. However, on realization front; FSA realization falls by 8%yoy to Rs1182/tn (-3%qoq) while E-auction realization came in strong at Rs 1998/tn (+28%/+24% yoy/qoq), also washed coal realization remained firm at Rs2975/tn (+3%/+15% yoy/qoq). Consequently, blended realization falls by 1.4%yoy to Rs1345/tn (+3%qoq). Better dispatch has led to improvement in EBITDA/tn (excluding OBR adjustment) by 11%yoy to Rs364/tn. Overburden removal adjustment came in at Rs61/tn (+6% yoy). Lesser dispatch w.r.t linkage coal for non-power companies has been primarily due to poor rake availability, which is likely to improve now.

Coal availability at power plants still continues to be worrisome. The month of Oct, Nov and Dec 2017 witnessed c.15-20 plants suffering with critical level coal inventory. Even Jan’18 (16 plants with critical inventory) and Feb’18 (20 plants with critical inventory) did not see much improvement in the scenario. We expect, dispatch growth to improve accordingly to matchup the demand requirement of IPPs along with the due supply of non-power companies which CIL could not deliver in last few months. On realization front; we expect improvement in the e-auction volume in sales mix will help offset decline in pricing pressure from FSA realization. We expect CIL to maintain strong dividend payout.

Valuation looks attractive: Maintain BUY

We have rolled forward our estimates to FY20. We are valuing the business at 7.5x FY20 EBITDA and value the cash separately. We maintain BUY rating on the stock with a TP Rs 359. EPS.

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