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Coal India: Logistical bottlenecks mar performance - Views on News from Equitymaster

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  • Jun 10, 2011 - Coal India: Logistical bottlenecks mar performance

Coal India: Logistical bottlenecks mar performance

Jun 10, 2011

Coal India has declared its fourth quarter and financial year 2011 (FY11) results. The company has reported a 13% YoY growth in both consolidated sales and net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 19% YoY and 26% YoY during 4QFY11 and FY11 respectively.
  • Operating margins decline to 22% from 27% in FY10. This is largely on account of higher fuel costs (as percentage of sales).
  • Despite weaker operating margins, higher other income and lower depreciation charges cushioned the net profit margins.
  • The company recorded higher ever capacity addition of 2,490 MW for FY11.
  • Board has recommended an interim dividend of Rs 3 per share (dividend yield of 1.8%).

Financial performance
  Standalone (Holding company) Consolidated
(Rs m) FY10 FY11 Change FY10 FY11 Change
Net sales 3,978 4,137 4.0% 446,152 502,335 12.6%
Expenditure 3,035 2,509 -17.3% 340,988 367,716 7.8%
Operating profit (EBDITA) 943 1,628 72.6% 105,164 134,619 28.0%
EBDITA margin (%) 23.7% 39.4%   23.6% 26.8%  
Other income 40,246 47,695 18.5% 48,469 47,361 -2.3%
Depreciation 89 55 -38.2% 13,294 16,729 25.8%
Interest 2,396 2,034 -15.1% 691 619 -10.4%
Profit before tax 38,704 47,234 22.0% 139,648 164,632 17.9%
Tax 905 273   43,424 55,958 28.9%
Effective tax rate 2% 1%   31% 34%  
Profit after tax/(loss) 37,799 46,961 24.2% 96,224 108,674 12.9%
Net profit margin (%) 950.2% 1135.1%   21.6% 21.6%  
No. of shares (m)         6,316.3  
Diluted earnings per share (Rs)*         17.2  
Price to earnings ratio (x)         23.7  
(*On a trailing 12-month basis)

What has driven performance in FY11?
  • Coal India (CIL) grew its sales by 13% YoY during FY11. This was on the back of additional coal sales of around 9 m tons. The company also took a price increase in some grades of coal during the fourth quarter of the fiscal which impacted revenues. Coal India's consolidated operating margins improved to 27% in FY11 from 24% in FY10, largely on account of higher volumes and better pricing.

  • Shortage of railway rakes impact the transport of coal last year. The Indian Railways is the largest transporter CILís coal produce was accounted for around 51% of its total offtake in FY11. The Railways has assured availability of 185 rakes a day for CIL but could make available only 162 rakes a day. So, there was 23 rakes per day backlog, which when converted into the quantity, translates into 34 m tonnes. The Railways have now geared up capacity by investing in more number of railways rakes to ensure better coal offtake in FY12.

  • CIL produced 451 m tons of coal in FY11 and ended up with 7 m tond in its stocks. The company had earmarked 335 m tons of coal for the power sector last year but could deliver only 304 m tonnes.

  • In terms of coal linkages for the power sector the delivery assured was 306 m tons, while the delivery was only 291 m tons. So there was a shortfall of 15 m tonnes in the linkage system of power sector. Again for the new power plants who get coal under MoU with CIL, they were supposed to get about 29 m tons but they ended up getting only 14 m tons of coal.

  • CIL has sold 11% of its volume through e-auction route accounting for ~17.5% of its total net sales in FY11.

  • CIL incurred capex of `Rs 25 bn during FY11, below its target of Rs 36 bn. The management has however indicated a capex of Rs 43 bn for FY12.

  • Despite lower other income, higher operating margins and lower interest outgo boosted CILís consolidated net profits that grew 13% YoY.

What to expect?
At the current price of Rs 407, the stock is trading at a multiple of 17 times its trailing 12 months earnings. Both CIL's topline and bottomlne performances have been marginally below our estimates for FY11. For the current fiscal (FY12) CIL has fixed a targeted coal production of 852 m tons and offtake of coal of 454 m tons based on the availability of 175 rakes per day. CIL has targeted a production of 560 m tons by FY17E implying a growth of 25% from current levels of production. We believe that the current valuations factor in most of the near to medium term upsides in the stock.

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