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e-auction premium breaches 100% after 12 quarters

Strong coal demand reflected in higher e-auction premium

* COAL posted a strong sequential rebound in margin in 3QFY22, although it missed our estimate on higher than expected RM costs and contractual expenses.

* We expect profitability to recover further in 4QFY22, led by strong e-auction premiums, which breached the 100% mark after 12 quarters in Jan-Feb’21.

* We raise our FY22E/FY23E adjusted EBITDA by 4%/15%, led by higher eauction premium and increase our TP to INR217 (from INR200 earlier), valuing COAL at 4x FY23E EV/EBITDA. The company is a key beneficiary of the ongoing supply shortage in the global coal market, which is impacting importers in India.

Operating profit jumps on higher offtake

* Revenue rose 20% YoY and 22% QoQ to INR284b, in line with our estimate of INR280b.

* Adjusted EBITDA (excluding OBR) grew 26% YoY and 84% QoQ to INR73.9b (below our estimate of INR95.5b). The jump in EBITDA was on the back of volume growth, led by a 17% YoY increase in FSA offtake.

* Cash costs (excluding OBR) rose 4% YoY to INR1,071/t, higher than our estimate of INR941/t. Cash costs were impacted by higher inventory release and cost of raw material. Employee cost was marginally below our estimate, although higher on a YoY basis.

* PAT grew 48% YoY and 55% QoQ to INR45.6 (below our estimate of INR60b). The miss at the PAT level narrowed due to lower tax.

* Dispatches in 3QFY22 rose 13% YoY to 174mt, in line with our provisional estimate. Production grew 4% YoY to 164mt, which compares to our provisional estimate of 157mt.

* FSA volumes rose 17% YoY to 145mt (est. 142mt). FSA realization was broadly unchanged YoY and QoQ at INR1,370/t (in line).

* e-auction volumes and realization/t were in line with our estimate at 26mt and INR1,947, respectively.

Other highlights

* Wage negotiations have entered the third round, and the management expects the same to be completed before FY23-end.

* COAL reiterated that a price hike is imminent to offset rising costs and the large planned capex, failing which it will have to dip into its cash balance or even raise debt.

* COAL needs to raise the FSA coal price by 4.1%, from 3QFY22 levels, to offset a 10% increase in the wage bill, without any natural attrition. Considering the natural net attrition rate of 12,000, we estimate an FSA price hike of 4% to cover the incremental wage bill on expanded volumes of 707mt

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