Buy Coal India Ltd For Target Rs. 499 By Elara Capital Ltd
Subdued Q3
Coal India (COAL IN) reported marginal growth in production and offtake in Q3FY25, with coal production rising 1.5% YoY to 202MT and offtake increasing 1.7% YoY to 194MT. For 9MFY25, production grew 2% YoY to 543MT, while offtake rose 2% YoY to 560MT. Revenue declined 1% YoY to INR 357bn, and PAT fell 18% YoY to INR 85bn, impacted by lower realizations in both FSA and e-auction segments amid declining international coal prices. EBITDA dropped 5% YoY with margins contracting to 34%. COAL is unlikely to meet its FY25 production target of 838MT, given the current growth rate. Although COAL aims to achieve 1,000MT production by FY26 to support the government’s 24x7 power supply goal, execution remains a key monitorable.
Coal production and offtake up marginally:
Coal production in Q3FY25 rose 1.5% YoY to 202MT. Coal offtake increased 1.7% YoY to 194MT. Coal production has increased 2% YoY to 543MT in 9MFY25. Coal offtake increased 2% YoY to 560MT in 9MFY25. The fuel supply agreement(FSA) volumes were down 0.9% YoY to 171MT. e-auction volumes increased 22% YoY to 19.2MT. e-auction volumes constituted 11% of the overall volumes in Q3FY25
Tepid production and lower realization hit earnings:
COAL’s revenue declined 1% YoY to INR 357bn. Employee benefit expenses dropped 3% YoY to INR 112bn. EBITDA declined 5% YoY to INR 123bn. Operating margin contracted to 34% in Q3FY25 versus 36% in Q3FY24. Depreciation increased 46% YoY to INR 25bn. Interest cost declined marginally to INR 2.2bn. Other income declined 3% YoY to INR 21bn. Reported PAT dropped 18% YoY to INR 85bn. The realization for FSA declined 1.2% YoY to INR 1,514/tonne. e-auction realization declined 20% YoY to INR 2,671/tonne on moderation in international coal prices. e-auction premium stood at 76% in Q3FY25.
COAL likely to miss volume guidance for FY25:
The management has guided for coal production of 838MT in FY25. Coal production has increased by a tepid 2% YoY to 543MT in 9MFY25. With current rate of execution, we anticipate that COAL will likely miss its volume guidance for FY25. The government has set a target to ensure 24x7 power supply for all by CY25. The management has set an ambitious goal to reach production volume of 1,000mn tonnes by FY26.
Maintain Buy with a lower TP of INR 499:
We remain positive on COAL in the long term given: 1) increasing acceptability of coal as a dominant fuel mix and good volume delivery for the past few quarters, 2) better evacuation infrastructure in terms of firstmile connectivity projects, 3) healthy balance sheet, and 4) likely annual dividend payout of INR 23-25/share, implying a 6% yield. We maintain Buy with a lower TP of INR 499 from INR 572 on 5x (unchanged) FY27E EV/EBITDA. We have reduced our target price, factoring in lower-than-expected growth in coal volumes and moderation in e-auction premium.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
