Coal India Limited - Much awaited price hike provides respite to margins - Antique

5%/6% YoY higher FSA offtake/realizations contribute to higher profits

Coal India Ltd.'s (CIL) revenue for 4QFY13 grew 2.5% YoY at INR199bn on account of 5.7% YoY growth in offtake (130mmt) and 3% YoY decline in average realisations (INR1,533/mmt). Of the incremental 7mmt sold in the quarter, FSA supplies increased 6.7mmt (up from 102.8mmt in 4QFY12 to 109.5mmt in 4QFY13) while E-auction sales increased by a mere 0.2mmt (at 14.9mmt in 4QFY13). FSA realisations grew 5% YoY, up from INR1,336/mt in 4QFY12 to INR1,403/mt in 4QFY13. E-auction realizations was down 19% YoY to INR2,308/mt in 4QFY13 (vs. INR2,852/mt in 4QFY12). E-auction sales % of total off-take has reduced from 12% to 11.5% in 4QFY13.

EBITDA margins expand 600bps on lower costs

EBITDA (ex-OBR) for the quarter was up 23% YoY at INR70bn due to 18% YoY decrease in employee expenses as a 25% wage hike was taken on Jan'12 effective from July'11 which was charged in Q4FY12 leading to depressed margins at 29%. Social welfare expenses have declined 90% YoY as there has been reclassification of costs incurred on power in townships under employee expenses. PAT grew 35% YoY (INR54.2bn).

Strong operating performance continues

Coal production for the quarter declined 0.9% YoY (143mmt vs 145mmt in 4QFY12) and for FY13 grew at 3.8% YoY to 452mmt. FY13 coal sales was up 7.4% YoY at 465mmt as wagon loading increased 11% YoY, up from 168 rakes/day in FY12 to 186 rakes/day. Overburden removal was flat YoY at 205m CUM for the quarter. CIL's inventory has decreased from 70mmt in FY12 and 57.8mmt in FY13 contributing to the higher offtake.

Finally 4.8% average hike in realisations taken; margins set to expand

Coal India has taken a 10% hike in coal prices for coal with GCV ranging between 2200-6000 kcal and 12% reduction for coal with GCV ranging between 6000-6300 kcal. This cumulates into average price hike of 4.8% effective from June'13 which as per the management will provide incremental revenue of INR21bn for FY14 and INR24bn for FY15. This hike has been taken to offset increase in wages of contract employees and diesel prices due to diesel price deregulation which would have resulted in higher cost of INR20bn for CIL in FY14e (for every INR1/litre increase in diesel prices financial impact for CIL was INR1.2bn).

Valuation and outlook

We have increased our FY14e/FY15e EBITDA estimates by 4.6%/1.3% due to the recent price hike taken. We roll over our target price to FY15e assigning a 6x EV/EBITDA multiple and maintaining our target price at INR387. At the CMP of INR323, CIL is trading at 9.3x PE and 4.3x EV/EBITDA on FY15e basis. Reiterate BUY.

Source : Equity Bulls

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