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Evacuation charge hike to benefit

Coal India (CIL) has subsumed rapid loading charges (Rs29/te) with evacuation charges (Rs50/te) and hiked both to a standard rate of Rs60/te w.e.f. 1st Aug’21. This hike will result in an increment of >Rs8.5bn p.a. in earnings. While we increase our EPS estimates for both FY22E/FY23E, incorporating the increased charges, we reduce our offtake volume estimates by 5mnte for each year, due to heavy rains in the eastern part of India. In 4MFY22, production/offtake at 166.6mnte/210.8mnte was up 5.2%/28.4% YoY. Also, in Q1FY22, e-auction volumes were 27.3mnte (up 38% YoY), while premiums averaged 18% above notified prices, and in Jun’21, spot eauction premiums reached 38%. Maintain BUY.

* Evacuation charge increase will lead to higher earnings: CIL sells 83% of its annual coal production (~500mnte) without silo storage for which it charged Rs50/te earlier as evacuation facility charges. For the balance 17% ~(100mnte), silo facilities are present and the rapid loading charged earlier was Rs29/te. W.e.f. 1st Aug'21, CIL has subsumed rapid loading charges with evacuation facility charges and standardised it to Rs60/tn, as is being done by SCCL. Ceteris paribus, we estimate the revision to result in earnings increase of Rs4.7-4.9bn in FY22 and >Rs8.5bn p.a. FY23 onwards. However, tweaking volumes downwards on slight flood-like situation in the east (we have reduced our offtake estimates for FY22/FY23 by 5mnte each), hence, net EPS impact will be +1.1%/+3.7% on our earlier estimates.

* Production and offtake remain higher YoY: For Jul’21, production was 42.6mnte (+14.1% YoY) while offtake was 50.5mnte (+16.7% YoY). For Q1FY20, production was 124mnte (+2.4% YoY) while offtake was 160.3mnte (+32.7% YoY). For 4MFY22, production/offtake was 166.6mnte/210.8mnte, up 5.2%/28.4% YoY.

* Subsidiary-wise performance in 4MFY22: Production – ECL: 10.1mnte (-19.9%), BCCL: 8mnte (+25.1%), CCL: 17mnte (+45.7%), NCL: 34.8mnte (-0.7%), WCL: 13.1mnte (+5.9%), SECL: 37.7mnte (+2.4%) and MCL: 45.9mnte (+5.6%). Off-take – ECL: 13.6mnte (+2.7%), BCCL: 10.3mnte (+80.8%), CCL: 23.6mnte (+46.5%), NCL: 38.4mnte (+22%), WCL: 20.3mnte (+64.4%), SECL: 51.5mnte (+26%) and MCL: 53.1mnte (+19.9%).

* E-auction updates: E-auction volumes declined in May-Jun’21 from their spectacular run of >10mnte p.m. Dec’20 onwards. In Q1FY22, e-auction volumes were 27.3mnte (up 38% YoY). Average premiums during Q1FY22 were 18% above notified prices, and in Jun’21, spot e-auction premium reached 38%. With higher demand, premiums should remain elevated.

* Valuation: We maintain our BUY rating and DCF-based target price of Rs234, but reduce our offtake volume estimates for FY22E/FY23E by 5mnte each to 625mnte/655mnte, respectively, as we expect volumes to be impacted due to flood-like situation in Eastern India. The stock is currently trading at 5.6x P/E and 2.4x EV/EBITDA on FY23E basis with 39.7% RoE. We expect dividend payout to be high leading to ~14% dividend yield at current prices as incremental capex in diversified segments is expected to be funded by debt primarily.

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