Subdued demand impacts off take; FSA real. strong
Valuations attractive; dividend yield at ~10%
* Coal India (COAL)’s results highlight the impact of lower e-auction realizations and flattish volumes amid subdued thermal power demand. FSA realizations, though, have continued the improvement demonstrated over the past year on account of better grade quality.
* Muted power demand would impact off-take and e-auction realizations in the near term. However, we expect Coal India to tide over the situation given its large cash position (net cash: ~INR230b). Maintain Buy, with target price of INR189/sh based on 3.5x Sep’21 EV/EBITDA.
EBITDA declines 9% YoY on lower e-auction realizations
* COAL’s 4QFY20 adj. EBITDA (ex-OBR) declined 9% YoY to ~INR95b (est.: ~INR66b) due to lower e-auction realizations and muted power off-take. The beat on our estimates was driven by better-than-expected FSA realizations and a higher mix of e-auctions in the off-take. Other income rose 5% YoY to INR19.1b (est.: INR10.32). PBT declined 16% YoY to INR74.5b. Adj. PAT was down 23% YoY to INR46.3b (est.: INR28.9b).
* Revenue declined 3% YoY to ~INR276b (est.: INR257b) on lower e-auction realizations. Volumes were flat YoY at ~164mt (in-line). Cash cost (ex-OBR) decreased 1% YoY at INR981/t.
* FSA: FSA volumes declined 2% YoY to 139.2mt. Realizations came in higher than our expectation at INR1,446/t (est.: INR 1,362/t) on continued better grade realization.
* E-Auction: E-Auction volumes rose 26% YoY to 21mt. Conversely, realizations were down 24% YoY to INR2,105/t.
* Net profit for FY20 declined 4% YoY to INR167b. However, cash flow from operations fell 75% YoY to INR41.5b on account of stretched receivables.
Management commentary: Receivables continue to rise
* COAL’s management noted the co.’s receivables have continued to increase on account of liquidity constraints at DISCOMs that have been passed on to the generators. Receivables for COAL currently stand at INR180b (v/s ~INR140b at the end of Mar’20).
* COAL is focusing on OBR (overburden removal). OBR has increased 10% over the past few months despite an early and heavy monsoon. COAL is targeting a 30% YoY increase in OBR for FY21.
Valuations attractive; Maintain Buy
* Over the near term, we expect vols. and e-auction realizations to be under pressure on muted power demand and significant stock at both mines and power plants.
* However, we expect Coal India to tide over the situation in the near term given its large cash position (net cash: ~INR230b). The stock trades attractively at ~1.6x FY22E EV/adj. EBITDA (v/s historical average of 7x) and PE of 5x (v/s average of ~13x), and offers dividend yield of ~10%. Maintain Buy, with target price of INR189/sh
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