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Research
Coal India - AR Analysis: Focus shifts to production - JM Financial
Posted On : 2012-09-01 10:24:21( TIMEZONE : IST )
Production ramp-up from ongoing projects key: Coal India produced 436mnT in FY12 with offtake at 433mnT. Management expects coal production for FY13 at 464mnT with 229mnT from ongoing projects (211mnT in FY11), 224mnT from completed projects (224mnT in FY11) and 11mnT from new projects. For the XIIth plan target of 614mnT, ongoing projects and new projects are likely to contribute 334mnT (+122mnT from FY12) and 80mnT respectively (Exhibit 2). We believe, with 46% of ongoing projects still requiring EC/FC clearances (Exhibit 3), achievement of incremental 122mnT in ongoing projects is a key monitorable for achieving targets. However with land acquisition/R&R activities still hampering project progress, uncertainty is likely to continue in medium term (Exhibit 4).
MCL, NCL and WCL laggards in offtake performance: CIL achieved 96% of its offtake target during the year. Subsidiaries Mahanadi Coalfields (MCL), Northern Coalfields (NCL) and Western Coalfields (WCL) remained main laggards with offtake of 0%, -1% and -1% respectively. Key reasons for offtake miss were 1) law and order issues, 2) wagons supply/transportation bottlenecks, and 3) low acceptance by power station on quality issues (Mahagenco). While management has guided for improving wagon availability (FY13:184 rakes vs 169 rakes in FY12) and incremental 38mnT of dispatch, issue of low acceptance on quality needs to be addressed in order to improve offtake performance.
88% of budgeted capex spent in FY12: CIL incurred Rs.37.3bn capex, lower than budgeted estimates at Rs.42.2bn primarily due to slowdown led by environmental constraints. Although below target, capex achievement was a marked improvement year on year (67% achievement in FY11).
Maintain HOLD, Rs.360 TP: While the production and offtake has met pace in 1Q13, we believe, ease in clearance norms and removal of infrastructure bottleneck are key for any surprise on the production front. In addition certain regulations like mining bill (26% profit sharing), coal regulator bill (with pricing power), and coal price pooling proposal are likely to limit earnings visibility for CIL in the short term. We believe clarity on these issues will be key for the stock performance going forward.
