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Coal India’s (CIL) Q4FY23 performance (adj. for wage provisioning) was slightly
higher than consensus estimates. Key points: 1) Wage provisioning at Rs58.7bn
was higher than street estimates of Rs25-30bn; 2) e-auction volume at 16.4mnte
(down 41% YoY) was lower than our estimate of 20mnte; 3) FSA realisation was
higher compared to our estimates mainly led by performance incentives, higher
linkage materialisation and better grades; 4) cash balance at the end of Mar-23
stood at Rs399.2bn- highest since FY15; and 5) Board has recommended a final
dividend of Rs4/share.

In our view, wage provisioning is largely over and FY24 wage bill may be more

stable at Rs470-475bn. However, the bigger positive is higher FSA realisation (ex-
incentives) which is likely to sustain given the progressively higher linkage

materialisation as CIL ramps-up production/sales volume. Besides, the stock
offers an attractive sustainable dividend yield of 9% p.a. We maintain ADD rating
on the stock with an unchanged TP of Rs255 on 7.2x FY23E EPS (core), implying
P/E of 6.8x.

* FSA realisation uptick, a significant advantage. CIL’s Q4FY23 EBITDA of Rs68.9bn
was broadly in line with street’s estimate of Rs90-95bn, sans higher than expected wage
provisioning. Key points: 1) Wage provisioning of Rs58.7bn (FY23: Rs81.5bn; total:
Rs92.3bn) against street estimates of Rs25-30bn; 2) FSA realisation was up 4.6% QoQ

at Rs1,550/te due to performance incentive and higher linkage materialisation; 3) e-
auction revenue was slightly higher QoQ at Rs74bn as lower realisation got completely

offset by higher volume; 4) Mar-23 cash balance of Rs399.2bn (27% of current market
cap) is the highest since FY15 despite capex of Rs142bn; and 5) Board has
recommended final dividend of Rs4/share, taking FY23 dividend to Rs24.25/share
(dividend yield of 10%). Going ahead, we believe volume ramp up and robust FSA
realisation (due to higher linkage coal proportion) are likely to offset lower e-auction
premium, maintaining EBITDA/te at Rs375-380 through to FY25E.

A key overhang is over: With cumulative provisioning of Rs92.3bn since Q4FY22,
we believe bulk of wage provisioning is over and expect wage bill to settle at Rs470-
475bn in FY24. However, better linkage materialisation aided by higher
production/offtake is likely to offset the adverse impact of potentially lower
realisation.

Outlook: Dividend potential intact. We believe CIL’s cash generation is likely to
stay robust on the back of volume ramp up and higher FSA realisation despite capex
requirement of Rs140bn p.a. Hence, we estimate a sustainable dividend yield of 9%.
Maintain ADD with an unchanged TP of Rs255 on 7.2x FY25 EPS (core).

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