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Robust domestic demand and higher volumes to drive performance

* COAL’s 1QFY24 revenue was up 2% YoY at INR360b and was 6% above our estimate of INR338b, driven by higher volumes and FSA realization.

* Blended ASP was down 3% YoY at INR1,769/t and FSA ASP was up 7% YoY at 1,526/t. While e-auction ASP declined 14% YoY to INR3,742/t, the e-auction premium stood at 144% (est. 90%). Though the e-auction premium cooled off to 144% from an all-time high of 329% in 2QFY23 and 192% in 4QFY23, it is still above its historical average.

* Adjusted EBITDA (net of OBR) fell 12% YoY to INR112b, 55% above our estimate of INR72b, owing to lower employee costs, lower CSR and low input costs. Excluding OBR, EBITDA stood at INR105b (52% beat).

* APAT declined 10% YoY to INR80b (59% beat on our est. of INR50b), driven by lower OBR and depreciation expenses, partly offset by low other income.

* The NCWA-XI agreement for salaries and wages for non-executive employees was implemented in 1QFY24 and paid at revised rates. Prior to the implementation of the agreement, COAL had already made provisions of INR81.5b as of FY23.

* COAL production rose 10% YoY to 176mt and sales (dispatches) grew 5% YoY to 187mt (in line with our est. of 188mt). It posted its highest first-quarter production and output in 1QFY24 despite heavy rainfalls at some mines.

* COAL clocked incremental sales of ~9mt, which is significantly higher as it comes from a high base of previous year.

* OBR stood at 497.5 m.cu.mts (up 30% YoY). Higher OBR removal facilitates faster and higher volumes of coal extraction in future and will help COAL achieve its FY24 production target of ~770-780mt.

* The government’s commitment to provide 24x7 power supply to all homes augurs well for COAL to achieve strong coal production in next few years.

* COAL also achieved one of the highest dispatches to the non-power sector at 33.4mt (up 34% YoY).

Valuation and view

* We believe the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term. China has also increased its dependence on thermal power and has commissioned nearly two thermal power plants each week in CY22 and has added more plants in 1HCY23 as well. With 14 countries adding new coal plants in last one year and eight countries announcing new projects, the dependence on coal is therefore likely to increase in the near term. COAL remains our top pick in the mining sector. The stock is trading at an inexpensive valuation of 3.1x on FY25E EV/EBTIDA. We retain our BUY rating with a TP of INR300, valuing the stock at 4.5x FY25E EV/EBTIDA.

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