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  • Nov 21, 2011 - Coal India: Realisations boost a staid performance

Coal India: Realisations boost a staid performance
Nov 21, 2011

Coal India has declared its first half of financial year 2011-12 (1HFY12) results. The company has reported 23% YoY growth in consolidated net sales while net profits have grown by 67% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 23% YoY during 1HFY12 despite 5% YoY fall in production and negligible change in offtake volumes.
  • Operating margins improve to 26% from 23% in 1HFY11. This is largely on account of higher realizations and despite rise in employee costs.
  • 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) 1HFY11 1HFY12 Change
Coal production 185.6 176.6 -4.8%
Offtake 199.9 199.9 0.0%
(Rs m)
Net sales 225,379 276,471 22.7%
Expenditure 174,656 203,414 16.5%
Operating profit (EBDITA) 50,723 73,057 44.0%
EBDITA margin (%) 22.5% 26.4%  
Other income 21,403 33,530 56.7%
Depreciation 8,149 10,041 23.2%
Interest 101 88 -12.9%
Profit before tax 63,876 96,458 51.0%
Exceptional items (614) 224  
Tax 22,936 29,247 27.5%
Effective tax rate 36% 30%  
Profit after tax/(loss) 40,326 67,435 67.2%
Net profit margin (%) 17.9% 24.4%  
No. of shares (m)   6,316.3  
Diluted earnings per share (Rs)*   21.5  
Price to earnings ratio (x)   13.9  
* On a trailing 12-months basis

What has driven performance in 1HFY12?
  • Coal India (CIL) grew its sales by 23% YoY during 1HFY12 despite 5% YoY fall in production and negligible change in offtake volumes. The management attributed the drop in production to extended monsoon in the mining areas. The company benefited from the price increase in some grades of coal as well as nearly 100% higher realizations for coal sold via e-auction. Coal India's consolidated operating margins improved to 26% in 1HFY12 from 23% in 1HFY11, largely on account of higher volumes and better pricing.

  • Shortage of railway rakes continued to impact the transport of coal. The Indian Railways is the largest transporter CIL's coal produce was accounted for around 51% of its total offtake in FY11. The Railways have now geared up capacity by investing in more number of railways rakes to ensure better coal offtake in 1HFY12.

  • The higher realizations are thanks to the company's strategy to sell at least 10% of its total production through the e-auction route. Reason being e-auction of coal fetched it prices that were 63%, 81% and 100% higher than normal prices in FY10, FY11 and 1HFY12 respectively. But the catch here is that the consistent rise in e-auction prices is unsustainable. The e-auction prices are linked to the international prices which have shown a downward trend over the past few months. Hence, CIL's sales growth prospects from hereon will largely remain limited to the growth in volumes. In addition, pressures of rise in employee costs may take a toll on margins. Further, if and when the new mining bill gets introduced, the company will have to pay royalty of around 5% on sale price at pit mouth.

  • Higher other income from investments and lower interest outgo also offered a boost to the company's bottomline in 1HFY12.

What to expect?
At the current price of Rs 300, 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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