Coal India - Reduced uncertainty on FSA improves future outlook - Avendus

COAL's Jun12 net profit was in line with estimates, despite lower-thanestimated realizations, which increased 7% y-o-y. We forecast realizations to improve from 2QFY13f due to a rise in coal prices by up to 15% at Western Coalfields Ltd and Eastern Coalfields Ltd. Our FY13f-FY15f estimates are maintained. The EBITDA was flat y-o-y, as higher realizations were offset by an increase in staff costs owing to a wage revision from Jan12. Improved yield on investments led to higher other income, while net profit went up 7.9% y-o-y to INR44.7bn. We raise our TP to INR415, following the rollover to Jun13, as we discount the historical average multiple by 20% compared to 30% earlier on reduced uncertainty on fuel supply agreements (FSAs). Maintain Add.

Price increase at subsidiary to be reflected from 2QFY13f

Coal India's realizations for 1QFY13f rose 7% y-o-y to INR1,460/tonne, which is lower than our estimate of INR1,500/tonne. Volumes were in line with estimates and increased 6.4% q-o-q to 113mn tonnes. The company raised coal prices at its Western Coalfields Ltd by up to 15% from Jul12 and is reviewing prices at Eastern Coalfields Ltd. We forecast coal prices to increase c7% in FY13f with a sales volume of 462mn tonnes against the management guidance of 470mn tonnes. Our revenue estimates for FY13f-FY15f are maintained.

EBITDA at INR48.1bn is flat y-o-y due to higher wage costs

The EBITDA at INR48.1bn was flat y-o-y, as higher staff costs offset a revenue growth of 13.8% y-o-y. Staff costs and welfare expenses rose 25.8% and 37.4% y-o-y, respectively, owing to a wage revision effective from Jan12. Over burden removal adjustments also increased 24.6% y-o-y to INR7.3bn. Contractual expenses, and power and fuel costs rose up to 12% y-o-y on higher coal production and rising inflation. We maintain our FY13f-FY15f EBITDA estimate.

Improved yield on treasury boosts other income by 32.9% y-o-y

Other income went up 32.9% y-o-y to INR20.7bn due to an improved yield on investments, and increase in cash and cash equivalents. The net profit rose 7.9% y-o-y to INR44.7bn with the Tax/PBT at 29.3% in 1QFY13 compared to 30.5% in 1QFY12.

Maintain Add rating upgrade target to INR415 after rollover

We maintain our EPS forecast for FY13f-FY15f. We raise our TP to INR415, following the rollover to Jun13, as we discount the historical average EV/EBITDA and P/E by 20% compared to 30% earlier due to reduced uncertainty on FSA agreements on finalization of price pooling for imported coal. The discount to the historical average multiple is considered owing to a shorter listing period. Cash and cash equivalents of INR113/share, as on Mar13, is likely to restrict the downside in valuation terms. We maintain our Add rating on the stock. Risk factors include a lower-than-estimated sales volume and likely penalty due to the failure to meet FSA requirements.

Source : Equity Bulls

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