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Another excellent quarter of operations

Coal India (CIL) continues to clock strong operational numbers, buoyed by high domestic coal demand and continued elevated international coal prices. In Q1FY23, production / offtake was 159.8mnte / 177.6mnte, up 28.9%/10.7% YoY, respectively. Production has increased by a record 35.8mnte YoY in Q1FY23, higher than the YoY increase in the entire FY22 (26.4mnte). With this strong performance, growth rate now required to reach 700mnte of production in FY23 reduces to 8.3% for the remaining period in FY23 from 12.4% required at the start of the year. CIL supplied 153.2mnte of coal to the power sector, comprising 86.3% of the total offtake, which is higher than the supplies in FY22 (81.6%). Boosted by this, while FSA volumes remain strong, eauction volumes booked are tepid at 6mnte for Apr-May’22 which we expect to pick up in H2CY22. However, e-auction premium at a weighted average of 384% for the same period is expected to compensate for lower volumes. We believe dependence on domestic coal will continue to remain strong and e-auction premiums will remain elevated in FY23, which is expected to result in a better FY23, both in terms of volumes and prices. Additionally, any FSA price hike will boost earnings, and cut in diesel prices will help lower cost. Maintain BUY.

Q1FY23 operational performance – key highlights:

For Q1FY23, production / offtake was 159.8mnte / 177.6mnte, up 28.9% / 10.7% YoY. Production has increased by a record 35.8mnte YoY in Q1FY23, higher than the YoY increase in the entire FY22 (26.4mnte). For the remaining 9 months of FY23, growth rate now required to reach 700mnte of production is only 8.3%, from 12.4% earlier.

CIL has been able to liquidate 17.8mnte of coal stocks, which stood at ~43mnte at Jun’22-end.

.CIL supplied 153.2mnte to the power sector during Q1FY23, up 19.8% YoY (increase of 25.3mnte YoY). Daily average supply was 1.684mnte in Q1FY22, and was 1.713mnte in Jun’22. This is positive, and the company is making all efforts to ensure adequate coal availability to power and non-power sectors.

E-auction update: Single window auctions have started since March’22 and the premiums have significantly increased thereafter. In Apr’22 / May’22, only 1.6mnte / 4.4mnte of coal had been auctioned and average premiums were 345% / 398% (weighted average premium is 384% for 2MFY23). E-auction volumes are expected to pick up in the coming months as power plants restock.

Strong operational Q1FY23 performance indicates a better FY23:

With daily power demand consistently crossing 200GW and expected to increase further, as well as continued high international coal prices, we expect dependence on domestic coal to remain strong and e-auction premiums to remain elevated in FY23. This is likely to result in a better FY23, both in terms of volumes and prices. CIL expects e-auction volumes at ~100mnte at high premiums in FY23. Additionally, any FSA price hike will boost earnings, and cut in diesel prices during the quarter by the central as well as several state governments is expected to ease costs and improve profitability further.

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