Accumulate Coal India Ltd. For Target Rs.453 By Elara Capital
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On track to meet volume guidance
Lower e-auction prices partially offset by rise in FSA realization
Coal India’s (COAL IN) revenue from fuel supply agreement (FSA) increased 13% YoY to INR 264bn in Q3 but revenue from the e-auction segment declined 29% YoY to INR 52bn on account of lower e-auction premium due to normalizing coal prices. Realization per tonne fell 34% YoY to INR 3,321 for the e-auction segment but rose 3.4% YoY to INR 1,532 for the FSA segment. Blended realization declined 6% YoY to INR 1,726.6/tonne.
Healthy Q3 on buoyant production
Q3 revenue rose 3% YoY to INR 362bn. EBITDA increased 10% YoY to INR 114bn. Operating margin improved to 32% in Q3 from 30% last year. PAT rose 18% YoY to INR 91bn in the December quarter. Coal production increased 11% YoY to 199mn tonnes in Q3. Dispatch volume for COAL rose 8.8% YoY to 191mn tonnes in Q3. The company is on track to meet its FY24 volume guidance of 780mn tonnes. Production for 9MFY24 rose 11% YoY to 532mn tonnes. Offtake in H1 increased 9% YoY to 552mn tonnes. COAL aims to achieve 1bn tonne production target by FY26. It estimates a capex of INR 800bn in the next five years.
e-auction prices weaken
e-auction premium had shot up ~4x since the introduction of unified e-auction, which further benefited from higher international coal prices and increased demand from the power sector. However, e-auction prices have started to soften to INR 3,321/tonne in Q3FY24 from a high of INR 6,062/tonne in Q2FY23, due to lower global prices as well as higher quantity offered under e-auctions.
Valuation: Reiterate Accumulate; raise TP to INR 453
We raise our FY24E-26E earnings and raise our TP to INR 453 from INR 385, on 5x FY26E EV/EBITDA. We remain positive on CIL given: 1) increasing acceptability of coal as a dominant fuel mix and CIL’s solid volume delivery in the past few quarters and 2) expected annual dividend pay-out of INR 20-23/share, implying a 7% yield. Reiterate Accumulate.
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SEBI Registration number is INH000000933
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