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Coal India: Good start to FY15 - Views on News from Equitymaster
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Coal India: Good start to FY15
Aug 19, 2014

Coal India has announced the results for the first quarter of financial year ended March 2015 (1QFY15). The company has posted a growth of 8.1% YoY in net sales and 7.3% YoY growth in net profits for 1QFY15. Here is our analysis of the results.

Performance summary
  • Net sales grow 8.1% in 1QFY15. This was on the back of 5.2% YoY growth in production and 3.6% YoY higher volume offtake.
  • Operating profits grew by 8.2% YoY. Operating margins remained stable at 24%.
  • Other income fell by 1.8% YoY.
  • Net profit for 1QFY15 was up 7.3% YoY. This was backed by lower interest cost and lower tax outgo.

Consolidated operating performance
(Million tons) 1QFY14 1QFY15 Change
Coal production 102.9 108.3 5.2%
Offtake 115.4 119.6 3.6%
(Rs m)
Net sales 164,724 177,995 8.1%
Expenditure 125,145 135,186 8.0%
Operating profit (EBDITA) 39,579 42,809 8.2%
EBDITA margin (%) 24% 24%  
Other income 22,196 21,805 -1.8%
Depreciation 4,756 5,183 9.0%
Interest 74 11 -85.1%
Profit before tax 56,945 59,420 4.3%
Exceptional items 50 157  
Tax 19,584 19,245 -1.7%
Effective tax rate 37% 31%  
Profit after tax/(loss) 37,311 40,018 7.3%
Net profit margin (%) 23% 22%  
No. of shares (m)   6,316  
Diluted earnings per share (Rs)*   24.4  
Price to earnings ratio (x)   14.9  
*Based on trailing 12 month earnings

What has driven performance in 1QFY15?
  • Coal India (CIL) missed the production target of 482 million tonnes for FY14 (actual production 4% lower at 462 million tonnes). As per the provisional figures provided by the company, during the first 4 months of FY15 (April - July) the company along with its subsidiaries achieved 95% of its production target and 92% of its pro-rata offtake target.

    CIL's production target for FY15 has been set at 507 MT, while the overall offtake target is 520 MT. Faster environmental clearances and reforms for the power sector are expected to bode well for CIL in FY15. Realisations under e-auction sales and washed coal sales are near their bottom, and any increase in global coal prices would lead to higher realisations for CIL. The recent price hikes indicate the company's ability to pass on the increased costs to maintain profitability.

  • The impact of lower volumes on topline was aggravated by a marginal fall in blended realisations. E-auction volumes continue to remain under pressure as the government has asked CIL to cut down the share the e-auction.

  • At the operating level, CIL reported 8.2% growth in operating profit for 1QFY15 largely on account of higher volumes. Operating margins for 1QFY15 remained stable at 24%. Operating costs per ton of coal increased 4% YoY to Rs 1,130/tonne on account of high diesel prices and power & fuel costs. EBIDTA/tonne for 1QFY15 was Rs 357, higher by 4.4% YoY.

  • CIL has projected requirement of about 221 railway rakes per day on an annual average basis for FY15 as against the average availability of about 184 and 190 rakes/day in FY13 and FY14 respectively. Average growth in rake movement has been around 4.0% during the last four years.
What to expect?
At the current price of Rs 364, the stock is trading at a multiple of 9.2 times our estimated FY17 earnings per share. Coal India is not just one of the biggest and strongest producers of coal globally, the company also has the balance sheet strength to add capacities and improve efficiency. When we evaluate the prospect of PSUs performing better in the years ahead, this company gives us more confidence than any other. With a solid balance sheet, plenty of reserves at its disposal and growing demand for its produce, all Coal India needs to do is to improve its efficiency level.

An added comfort is the fact that the stock can offer consistent dividend yield of 3.5 to 5% over the next 3 to 5 years, which itself makes it very attractive.

We recommended investors to buy the stock in June 2014.

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 large cap stock comprises more than 5% of your portfolio

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