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Coal India: A mixed bag - Views on News from Equitymaster
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Coal India: A mixed bag
May 22, 2013

Coal India has announced the consolidated results for the quarter ended March 2013. The company has posted a growth of 2.5% YoY and 34.9% YoY in net sales and net profits respectively for the quarter ended March 2013. Here is our analysis of the results.

Performance summary
  • Net sales grew by 2.5% YoY during 4QFY13. This was on the back of higher realisations.
  • Operating profits increased by 60.7% YoY. Operating margins increased by 11.1% YoY and stood at 30.7% in 4QFY13 as compared to 19.6% in 4QFY12.
  • Other income decreased by 4.3% YoY probably reflecting the fall in interest rates in the system.
  • Net profit for the quarter ended March 2013, increased by 34.9% YoY. Net profit margins improved by 6.5% YoY.
  • For the full year ended March 2013, net sales and net profits increased by 9.4% YoY and 17.4% YoY respectively.
  • The company has also recommended a final dividend of Rs 4.3 per share for FY13. This is over and above the interim dividend of Rs 9.7 per share for FY13.


Consolidated operating and financial performance
(Million tons) 4QFY12 4QFY13 Change FY12 FY13 Change
Coal production 144.6 143.3 -0.9% 435.8 452.2 3.8%
Offtake 122.8 130.0 5.8% 433.1 465.2 7.4%
(Rs m)
Net sales 194,190 199,045 2.5% 624,154 683,027 9.4%
Expenditure 156,112 137,856 -11.7% 467,472 502,192 7.4%
Operating profit (EBDITA) 38,078 61,189 60.7% 156,683 180,835 15.4%
EBDITA margin (%) 19.6% 30.7%   25.1% 26.5%  
Other income 23060 22065 -4.3% 75,369 87,466 16.1%
Depreciation 4103 4697 14.5% 19,692 18,129 -7.9%
Interest 187 127 -32.1% 540 451 -16.5%
Profit before tax 56848 78430 38.0% 211,820 249,721 17.9%
Exceptional items -508 -216   -857 -69  
Tax 17221 24508 42.3% 64,790 76,227 17.7%
Effective tax rate 37.0% 31.0%   37.0% 31.0%  
Profit after tax/(loss) 40135 54139 34.9% 147,886 173,563 17.4%
Net profit margin (%) 20.7% 27.2%   23.7% 25.4%  
No. of shares (m)         6,316  
Diluted earnings per share (Rs)*         27.5  
Price to earnings ratio (x)         11.8  
(*On a trailing 12-month basis)

What has driven performance in 4QFY13?
  • Coal India (CIL) reported a 2.5% YoY increase in net sales. 4QFY13 average realization at US$ 26/ton (Rs 1,430) fell 5% YoY. This excludes performance incentive of Rs 13 bn for the full year (vs Rs 10 bn last year) for supplying greater than 90% of the committed quantity. The decline is attributed to a 19% YoY fall in e-auction realizations to US$ 42/ton (volumes up 1%); 9% lower washed coal prices; 41% lower washed coal volumes. Fuel sale agreement (FSA) realizations improved YoY. FY13 average realization was up 2% to US $27/t.

  • March quarter (4QFY13) production fell 1% YoY to 143 mt impacted by a 2-day workers' strike. Dispatches grew 6% YoY to 130 mt (rake availability 210-220/day). FY13 production rose 4% to 452 mt; dispatches grew at 7% (465 mt). CIL's FY14 production target is 482 mt (up 7%); dispatches 492 mt (up 6%).

  • At the operating level, operating profits of the company improved by 60.7% YoY. Operating margins of the company declined by 11.1% YoY. Average production cost was Rs 1,024/t, down 4% QoQ and 17% YoY. 1) Consumption of stores and spares was Rs 20.2 bn, up 17% YoY 2) Employee expense was Rs 74.7 bn, up 18% QoQ. We believe that the sequential hike is mainly due to the inclusion of a large part of Corporate Social Responsibility (CSR) expenses.

  • The net profit of the company was up by 34.9% YoY on back of lower cost. Other income was down 4.3% YoY and down 6.5% QoQ.

What we expect?

Coal India's board has approved the rationalization of coal prices with effect from 28 May 2013. CIL expects Rs 25 bn of yearly additional revenue on account of rationalization; this equates to 3.6% of FY13 revenues. This price hike will help CIL to mitigate the cost increases and maintain its margins. We await more details on price rationalization.

CIL is open to improve the dividend payout ratio from current level (50%) to effectively utilize the cash. It also clearly stated that it is not in favour of investing its surplus cash in the other PSU companies and will not be able to do a buyback as it will lead to violation in the minimum shareholding limit for listing.

Coal India will need 200-202 rakes per day (186 rakes in FY13) for FY14 for achieving the dispatch target of 492 m tonnes. CIL is expecting the dispatches to rise by 10-11% through railways as other modes of transport like MGR and Road have already reached the saturation point. It expects to sell 46-48 m tonne of e-auction coal in FY14. But the key concerning part is the declining e-auction premium which has currently reduced to 35-36% as against the 39-40% achieved in FY13. CIL does not expect to import coal in FY14 for fulfillment of its FSA's. CIL also indicated that it is not aggressively following setting up of washeries as there is no demand for the product from the customers. However it will add washeries at MCL where the quality of coal is poor to improve its quality.

At the current price of Rs 322, the stock is trading at a multiple of 2.7 times our estimated FY15 book value. We maintain our Buy view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio

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