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Lower volumes drags earnings; outlook positive

Coal India (COAL IN) reported lower than our estimate EBITDA ex OBR at Rs71.5bn (CentrumE: Rs75.7bn), down 20% YoY/ down 38% QoQ. The underperformance is primarily due to lower realisation and also lower volumes resulting in higher CoP on account of higher fixed cost. Sales volume decline by 3.5% YoY to 168.1mt in Q2FY25. However, blended realisation/t declined by 5.8% YoY primarily due to sharp decline in FSA realisation as well as fall in e-auction premium to 69% (vs 84% YoY). CoP/t exemployee cost increase by 1.9% YoY to Rs755/t. As a result, EBITDA/t stood at Rs426/t down 17% (CentrumE: Rs456/t) YoY. Employee cost declined by 1.4% YoY. We understand coal will remain a primary source to meet rising energy requirement of nation. We incorporate COAL to achieve ~900mt of sales volume in FY27; 6% CAGR over next 3 years. We estimate Revenue/EBITDA/PAT to increase at 6%/11%/10% CAGR over FY24-27. We maintain BUY rating with target price of Rs614/sh (Earlier: Rs593/sh), valuing at 6x H1FY27E EV/EBITDA.

Volume down by 3.5% YoY; E-auction volumes down 4.6% YoY

COAL’s revenue decrease by 6.4% YoY to Rs307bn due to lower volume and lower realisation. Overall volume decreased 3.5% YoY to 168.1mt. The FSA volume down 4.4% YoY to 148mt while e-auction volume was down 4.6% YoY to 15.1mt. E-auction volume stood 9% of total volume in Q2FY25 (vs 11.68% in Q1FY25). During Q2FY25, Blended realisation was down by 6% YoY. The FSA realisation was down sharply by 5% YoY while E-auction realisation was down by 13% YoY on account of fall in average E-auction premium to 69% (Q2FY24: 84%).

EBITDA/t decline by 17% YoY at Rs426/t

Employee cost during the quarter remain flattish QoQ to Rs114.8bn. Employee cost per tonne basis however increase by ~2.1% YoY (Rs15/t) to Rs755/t. Overall CoP, at Rs1,399/t, was up 2% YoY. As a result, EBITDA (ex-OBR)/t was down ~17% YoY to Rs426. The stripping activity adjustment amounts to Rs15.4bn in Q2FY25 vs Rs15.2 bn in Q2FY24. The management has declared first interim dividend for FY24-25 of Rs15.75 per share

Maintain BUY with a target price of Rs614

We believe coal demand will remain high and COAL will be able to efficiently increase volume by 6% CAGR over FY24-27. Besides, incremental volume will generate sustainable EBITDA/t of ~Rs1000/t. High profitability will ensure enough cash after capex (FY25-26: FCF of Rs350-425bn/year) for higher dividend. We expect DPS of Rs25.5 and Rs30 respectively in each of FY26/FY27; a dividend yield of 5.5-6.5%. Our target price is Rs614, valuing COAL at 6x rolling over to H1FY27 EV/EBITDA. We maintain BUY rating.

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