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Coal India: Profit up on e-auction price - Views on News from Equitymaster
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Coal India: Profit up on e-auction price
Mar 13, 2013

Coal India has announced the consolidated results for the quarter ended December 2012. The company has posted a growth of 12.9% YoY and 8.8% YoY in net sales and net profits respectively for the quarter ended December 2012. Here is our analysis of the results.

Performance summary
  • Net sales grew by 12.9% YoY during 3QFY13. This was on the back of higher realisations.
  • Operating profits declined by 5.8% YoY. Operating margins declined by 5% YoY and stood at 25% in 3QFY13 as compared to 30% in 3QFY12.
  • Other income increased by 25.7% YoY on account of higher cash balance and increased treasury yield.
  • Net profit for the quarter ended December 2012, increased by 8.8% YoY. Net profit margins declined by 1% YoY.
  • For the nine months ended December 2012, net sales and net profits increased by 12.6% YoY and 10.9% YoY respectively.

Consolidated operating and financial performance
(Million tons) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Coal production 114.6 117.4 2.4% 291.2 308.9 6.1%
Offtake 110.3 120.5 9.2% 310.3 335.2 8.1%
(Rs m)
Net sales 153,493 173,250 12.9% 429,964 483,982 12.6%
Expenditure 107,950 130,368 20.8% 311,364 364,336 17.0%
Operating profit (EBDITA) 45,543 42,882 -5.8% 118,600 119,646 0.9%
EBDITA margin (%) 30% 25%   28% 25%  
Other income 18,778 23,605 25.7% 52,309 65,402 25.0%
Depreciation 5,547 4,204 -24.2% 15,589 13,432 -13.8%
Interest 127 96 -24.2% 352 325 -7.9%
Profit before tax 58,647 62,187 6.0% 154,968 171,291 10.5%
Exceptional items -52 -151   -276 148  
Tax 18,322 18,387 0.4% 47,569 51,719 8.7%
Effective tax rate 37% 31%   37% 31%  
Profit after tax/(loss) 40,378 43,951 8.8% 107,675 119,425 10.9%
Net profit margin (%) 26% 25%   25% 25%  
No. of shares (m)         6,316  
Diluted earnings per share (Rs)*         24.5  
Price to earnings ratio (x)         14.3  
(*On a trailing 12-month basis)

What has driven performance in 3QFY13?
  • Coal India (CIL) reported a 12.9% YoY increase in net sales. Coal India reported a sales volume of 120.5 m tonnes in 3QFY13, a 9.2% increase YoY. The company has achieved 71% of its targeted volumes of 470 m tonnes. Blended realisations for 3QFY13 have risen 3.3% YoY to Rs 1,438/tonne and remained flat QoQ. Realisations were up due to steep 14% YoY rise in e-auction realizations, indicating possibly higher grade sales. FSA realisations, though, fell by 4.5% QoQ to INR 1229/tonne. Railway rakes availability stood at 214/day (CIL's requirements currently stand at 234/day).

  • At the operating level, operating profits of the company declined by 5.8% YoY. Operating margins of the company declined by 5% YoY. Welfare expenses more than doubled YoY from Rs 3.6 bn to Rs 7.3 bn, whereas contractual expenses, other expenses and over burden adjustments increased 19.2%, 58.4% and 19.2% YoY, respectively.

  • Lower EBITDA was offset by higher other income which rose 25.7% YoY due to improved cash and cash equivalents and higher yield on investments. As a result net profit for the quarter ended December 2012, increased by 8.8% YoY. Improved recovery on receivables and provision write-backs also led to higher profits. Net profit margins saw a decrease of 1% YoY.
  • CIL's realizations shifted to gross calorific value (GCV) based pricing mechanism during January 2012 which has resulted in higher realizations during 9MFY13. On the price pooling front, we expect price pooling to be revenue-neutral for CIL in case it imports coal to meet the demand of power producers.

What to expect?

At the current price of Rs 350, the stock is trading at a multiple of 2.9 times our estimated FY15 book value. Despite a good set of numbers, management sounded a bit cautious in the press meeting, and highlighted that the recent impact of diesel cost increase has a high sensitivity for earnings. So, even if we were to adjust the impact of few one-offs on the cost side, the stock may not rally significantly, until investors get comfortable that the company would be able to pass this cost inflation through via a price hike. However, we believe that the current 3% dividend yield offer reasonable downside protection in case of near-term earnings disappointments.

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