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Coal India: Capitalising on coal shortages
Aug 26, 2011

Coal India has declared its first quarter of financial year 2011-12 (1QFY12) results. The company has reported 27% YoY growth in consolidated net sales while net profits have grown by 64% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 27% YoY during 1QFY12 backed by better pricing of coal.
  • Operating margins improve to 33% from 27% in 1QFY11. This is largely on account of lower fuel costs (as percentage of sales).
  • In addition to stronger operating margins, higher other income and lower interest costs boosted the net profit margins.
  • The company has a capex target of Rs 43 bn for FY12.


Consolidated operating and financial performance
(Million tons) 1QFY11 1QFY12 Change
Coal production 95.1 96.3 1.3%
Offtake 101.0 106.2 5.1%
(Rs m)      
Net sales 114,356 144,990 26.8%
Expenditure 83,352 96,794 16.1%
Operating profit (EBDITA) 31,004 48,196 55.5%
EBDITA margin (%) 27.1% 33.2%  
Other income 10,812 15,588 44.2%
Depreciation 4,280 4,308 0.7%
Interest 68 54 -20.6%
Profit before tax 37,468 59,422 58.6%
Exceptional items (111) 131  
Tax 12,097 18,115 49.7%
Effective tax rate 32% 30%  
Profit after tax/(loss) 25,260 41,438 64.0%
Net profit margin (%) 22.1% 28.6%  
No. of shares (m)   6,316.3  
Diluted earnings per share (Rs)*   19.8  
Price to earnings ratio (x)   18.3  
(*On a trailing 12-month basis)

What has driven performance in 1QFY12?
  • Coal India (CIL) grew its sales by 27% YoY during 1QFY12. This was on the back of growth in volume offtake by 5% YoY. 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 33% in 1QFY12 from 24% in 1QFY11, 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 CIL's 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 were 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's coal production grew at a marginal rate of 1.3% in 1QFY12. In FY11, the company had earmarked 335 m tons of coal for the power sector last year but could deliver only 304 m tonnes. The lower production is due to the pending environmental clearances that the company is awaiting on some of its mining blocks.
  • CIL continues to sell around 10% of its volume through e-auction route accounting that entails better pricing.

What to expect?

At the current price of Rs 360, the stock is trading at a multiple of 3.1 times our estimated FY14 book value. 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 even at the current valuations the upsides in the stock are limited over the next 2 to 3 years.

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