Coal India - 4QFY2012 Result Update - Angel Broking

Coal India's (CIL) 4QFY2012 results were above our estimates due to higher-than-expected realizations. We recommend Accumulate on the stock.

Higher realization aids net sales growth: Coal India's 4QFY2012 net sales increased by 29.4% yoy to Rs.19,419cr (above our estimate of Rs.17,672cr), primarily due to higher average realization. Blended average realization on coal sales increased by 13.9% yoy to Rs.1,585/tonne; however, offtake increased by 7.0% yoy to 123mn tonnes. Production grew by 8.9% yoy to 145mn tonnes.

Higher staff costs dent the company's EBITDA: The company's EBITDA per tonne decreased by 24.3% yoy to Rs.355 in 4QFY2012 on account of higher staff cost. The company's EBITDA decreased by 19.0% yoy to Rs.4,353cr, representing EBITDA margin of 22.4%. CIL's EBITDA was lower than our expectation of 26.8% on account of new wage hike agreement and its full effect being reflected in 4QFY2012. Adjusted net income for the quarter declined by 4.2% yoy to Rs.4,059cr (above our estimate of Rs.3,650cr).

Outlook and valuation: We expect CIL's volumes to post a CAGR of 5.0% over the next five years. Further, an increase in blended realizations due to shifting to GCV-based pricing is expected to offset the rise in staff costs in FY2013. The stock has underperformed over the past six months; we now believe that risk-reward ratio is favorable for investors. Valuing the stock at 8.0x FY2013 EV/EBITDA, we derive a target price of Rs.353 and recommend Accumulate on the stock.

Source : Equity Bulls

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