Coal India Ltd. share price target

Coal Indias (COAL?s) 3QFY17 results beat estimates (EBITDA at Rs 39.6bn vs est 33.7 bn, -20% YoY), as e-auction volumes and prices were ahead of forecasts. E-auction volumes constituted 18% of the mix (vs 13% est, 671 bps YoY, 126 bps QoQ), while premiums were higher at 21% (vs 15% in 2QFY17, 46% in 3QFY16).

On the back of rise in global coking coal prices, two of the coking coal producing subsidiaries of Coal India, Bharat Coking Coal (BCCL) and Central Coalfield (CCL), have increased prices. BCCL has increased coking coal prices by ~20% over the current price while prices of steel grade and direct feed coal have been linked to price of washed coking coal fixed on import parity price. The increase in price was done by subsuming the washery recovery charge, which was being charged separately. CCL also increased coking coal prices wherein the increase in price was done by...

ICICI Securities Ltd | Retail Equity Research Coal India reported a subdued set of Q2FY17 numbers on account of higher than expected employee cost, muted e-auction realisations and lower than expected e-auction volumes. The topline broadly came in line with our estimate; however EBITDA, EBITDA margin and PAT came in notably lower than our estimate. The FSA volume during the quarter came in at 93.0 MT, while the FSA realisation stood at |1293/tonne up 4% QoQ (our estimate FSA...

ff Multiple Factors Drag Operating Margins: CIL's employee cost surged by 14.6% yoy to Rs84bn on account of large wage provision. On the back of higher other expenses (15.6%), contractual expenses (5.5%), stripping activity adjustment (Rs1bn), provisioning (Rs1.43bn) and flat other income (Rs14.1bn), the Company's EBITDA margins plunged by 1490bps yoy during the quarter. CIL's reported PAT pummelled by 77% yoy on account of sharp decline in e-auction ASPs and higher...

Coal Indias numbers were below estimates (EBITDA: Rs 3.2bn vs est Rs 21.1bn) as it got hit by multiple negatives: (1) Weakest e-auction pricing on record with premium vs FSA down to ~4% (vs 27% QoQ and 36% YoY), (2) provisioning for wage hikes (Rs 7.1bn) and (3) Weak volumes (116 mT, -5.0% YoY). The latter two are known and baked into our numbers with provisioning for wage hikes assumed at 15/10% for FY17/18.

ff Dates: 20th, 21st, 24th & 25th of October 2016 ff Validity for Lifting: The total validity for lifting of coal window will be up to Mar 17. ff Reserve Price: The reserve price will be limited to the upper cap of 20% add-on over the notified price of coal for the non-power sector. ff Minimum Bidding Quantity: Minimum quantity for bidding is 50 tonne and in the multiple of 50 tonne. For Railways, the minimum quantity of bidding would be 1...

Coal India's reported nos (EBITDA: Rs38.6bn, -22.5% YoY, -37.8% QoQ) were disappointing. FSA pricing came in lower than expected (Rs 1,239/t, -4.4% YoY, -8.3% QoQ, -4.9% vs estimates) likely due to adverse mix and despite partial benefit of a price hike taken in end-May. E-auction realisations continue to languish (Rs 1,570, -28.1% YoY, -4.7% QoQ), though in line with estimates.

These numbers are undoubtedly weak, but things have moved significantly post June. The increase in imported coal/petcoke is likely to provide some boost to the e-auction realizations which continue to suffer, as the premium to FSA prices remains at near historic lows (27%). We also note that the realized eauction prices are much below import parity, even accounting for the asymmetric levies on domestic coal (6% excise vs zero import duty on Indonesian coal under FTA). Maintain BUY with a TP of Rs 369 (Unchanged, 8.0x FY18 EV/EBITDA)

Coal India (CIL) reported a subdued set of numbers wherein topline and PAT came in below our estimates while EBITDA came in line with our estimate. Reported PAT was lower than our estimate on the back of lower-than-expected other income and higher-than-expected tax rate .The company reported a total operating income of | 18421.9 crore, down 5.6% YoY lower than our estimate of | 19272.3 crore. The coal offtake came in line with our estimate at 133.2 MT up 2.9% YoY. However, the blended realisation during the quarter came in at | 1335.6/tonne, down 8.8% YoY, lower than our estimate of | 1401.6/tonne. FSA volume during the quarter came in at 107.7 MT with realisation of | 1239/tonne down 4.3% YoY (our estimate volume: ~108 MT, FSA realisation estimate: | 1315/tonne). The lower FSA realisation was on account of an inferior grade mix. Eauction volumes came in at 20.5 MT with realisation of | 1570/tonne down 28.1% YoY (our estimate of volume: ~17.0 MT and e-auction realisation estimate: | 1600/tonne).

Outlook and Valuation : During the current fiscal, Coal India registered meagre sales volume growth. For the first five months (April-August 2016), sales volumes remained flat at 211.1 MT primarily on the account of muted demand from end users. Subsequently, we have downward revised our sales volume estimate for FY17E and FY18E to 559 MT and 600 MT, respectively (from earlier sales volume estimate of 575 MT for FY17E and 625 MT for FY18E). We value the stock at 7.5x FY17E adjusted EV/EBITDA and arrive at a target price of | 340. We have a HOLD recommendation on Coal India.

Coal India’s 1QFY17 EBITDA (ex-OBR) of INR38.6b (-24% YoY) was below estimate of INR43.4b on lower FSA realization. Grade mix deterioration impacted the realization. OBR provision continues under Ind-AS. PAT of INR30.6b (-19% YoY) was ahead of estimate of INR29b on lower than estimated OBR provisions. Other income was down 13% YoY to INR17.6b (in-line) due to lower cash and equivalents.

Continuously improving coal prices in the international market strengthen the case for import substitution, but the volume growth has been elusive so far perhaps because of falling specific consumption of coal in power plants and growth in supply of alternative fuels e.g. gas, Nuclear, Renewables. Non-power sector demand is likely to pick up, in our view. Uncertainties regarding (1) Impact of deteriorating grade mix on realization (2) exact quantum of wage hike pending negotiation and (3) volume growth are fueling volatility to earnings. Although we remain positive on long term prospect, the near term uncertainties are likely to de-rate the stock. Further, there is limited upside to the target price.They downgrade the stock to Neutral

Coal dispatch growth was sluggish at 1.5% YoY to 41.5mt in July and 2.6% YoY to ~174mt YTD, as against growth estimate of ~5% YoY (to 562mt) for FY17E. Production grew 5.5% YoY to 36.7mt in July and 3.8% YoY to ~162mt YTD. Dispatches from ECL jumped ~31% YoY following ~13% YoY growth in June as pricing of high-grade coal has become competitive, driven by (1) price cut w.e.f. May 31 and (2) an increase in global coal prices. WCL posted a decline of ~50% in dispatches. MCL dispatches increased ~13% YoY. MCL's share in Coal India's (COAL) total off-take increased from ~25% to...