IGI Logo

Higher e-auction prices, improved product mix inflates earnings

Coal India (COAL IN) reported better-than-expected EBITDA ex OBR at Rs127.3bn (CentrumE: Rs70.5bn), up 178% YoY/2% QoQ. This is despite low e-auction volume and no increase in coal prices under FSA. The beat was due to higher realisation in both FSA and e-auction, higher e-auction volume and lower employee cost. EBITDA/t at Rs717, was up 151% YoY. COAL witnessed higher coal prices under FSA (up 3.5% YoY) due to better grade mix. Additionally, higher e-auction prices (up 177% YoY/78% QoQ to Rs4,340/t) inflated earnings. E-auction volume though will reduce in FY23 but will be more than offset by higher realisation. Domestically, e-auction coal is still cheaper by 45-50% from imported coal, providing upside risk to prices in FY23. Amid inflationary scenario, we believe that it will not be possible for COAL to raise prices under FSA and thus we do not factor in price hikes under FSA in FY23 and pencilled in 5% hike in FY24 by when it can finalise wage negotiations too. We increase our FY23E/FY24E EBITDA by 45%/2.6% primarily to factor in higher e-auction prices. COAL is available at 6.1x FY24 P/E and 2.7x FY24E EV/EBITDA. We believe its re-rating candidate as coal is here to stay for longer than what investors anticipate. We increase our target price to Rs306 (earlier Rs252), valuing COAL at 4.5x (earlier 4.0x) FY24E EV/EBITDA. Reiterate BUY

Higher volume and prices (FSA and e-auction) increases revenue by 39% YoY

COAL’s revenue increased 39% YoY to Rs351bn due to higher volume and prices. Overall volume increased 10.8% YoY to 177.7mt (FSA volume up 20.6% YoY to 153.8mt while eauction volume was down 30.7% YoY to 20.9mt). Blended coal realization, at Rs1,829/t, was up 26% YoY due to higher e-auction coal price (up 177% YoY to Rs4,340/t) and FSA coal price which was up 3.5% (Rs49/t) YoY to Rs1,443/t due to better grade mix. This increase in FSA price was despite COAL not taking any price hikes. Though the lifting of e-auction volume is slow in Q1FY23 amid diverting coal to power sector but the booked quantity at higher prices (COAL booked ~3.71mt at 357% higher than notified price in June 2022) will start reflecting in ensuing quarters

Higher revenue and operating leverage helps EBITDA ex-OBR to grow 178% YoY

EBITDA ex-OBR increased 178% YoY to Rs127.3bn primarily due to higher volume and FSA and e-auction prices, partly offset by higher CoP. Overall CoP, at Rs1,258/t, was down 2.5% YoY due to lower employee cost/t at Rs630, down ~25% YoY. The rise in diesel price led to 7% YoY increase in contractual cost to Rs348/t. Employee cost, at Rs100.7bn, was down 3% YoY due to increase in interest rate which reduced future obligations. COAL continues making provisions (Rs1bn/month since July’21) for ongoing wage negotiations with non-executives. As a result, EBITDA(ex-OBR)/t was up ~151% YoY to Rs717. We estimate that COAL recorded EBITDA/t of Rs3,082 in e-auction and Rs184 under FSA coal.

Reiterate BUY with a target price of Rs306

Globally, supply crunch (post Russia-Ukraine war) amid increased demand kept coal prices at elevated levels though will reduce from current levels. Domestically, e-auction coal is still cheaper by 45-50% from imported coal, providing upside risk to prices in FY23. We expect DPS of Rs20 in each of FY23 and FY24, a dividend yield of 9%. Reiterate BUY

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer