Coal India - Costs under control; recovery continues - ICICI Securities

Coal India's (CIL) Q3FY21 PAT declined 21.4% YoY to Rs30.8bn mainly impacted by higher contractual expense, one-time provision of old receivables, deferred tax expense and lower other income. Revenue was up 2.1% YoY at Rs236.9bn due to higher volumes and despite decline in average realisation by 7.6% YoY to Rs1,408/te, EBITDA was up 4% at Rs51.6bn. While ongoing projects are on track, capex on the recently announced diversification projects (solar cells, aluminium smelting), if undertaken, will only be Rs4-5bn as an enabler and not developer. CIL is expected to announce two more dividends in FY21. There is expectation of double-digit volume growth due to higher power demand and higher e-auction premiums; we remain positive for a better FY22. Maintain BUY, but revise our target price downwards to Rs234 (earlier: Rs240) mainly factoring in lower realisations.

Q3FY21 result - Key takeaways:

- Production/offtake was 154mnte/157mnte, up 4.3%/10.8% YoY.

- Revenue increased 2.1% YoY to Rs236.9bn due to higher volumes, despite decline in average realisation by 7.6% YoY to Rs1,408/te.

- EBITDA in Q3FY21 grew 4% to Rs51.6bn mainly impacted by - 1) lower employee expense (-4.9% YoY to Rs93.5bn), 2) gain on OBR adjustment (-44% YoY to Rs6.9bn), 3) higher contractual expense (up 18% to Rs43.5bn), and 4) one-time provision of Rs5bn (for debtors >3yrs at SECL & MCL).

- 9MFY21 OBR was 1,106mn cu. m. (up 20% YoY) and will continue to remain high.

- FSA prices (at Rs1,354/te) were lower due to higher sale of low grade coal. E-auction prices were at slight premiums of Rs1,466/te. FSA/E-auction volumes were -3.6%/ +177% YoY at 123.1mnte/27.3mnte. In 10MFY21, e-auction premium averaged 16%, while in Q3FY21 premium was higher at 25%.

- CIL's cost of production has declined by 3% YoY.

- Receivables in Jan'21-end were Rs216bn vs Rs212bn at Dec'20-end.

- Update on diversification: CIL is looking to diversify into solar cell manufacturing, coal gasification as well as aluminium smelting. It intends to form a SPV and partner with companies which will take technological and capital risks. CIL will only provide land and related infrastructure. Thus, CIL's investment in these ventures is estimated at only Rs4-5bn. Third party feasibility studies for all the announced ventures are on. FY21/FY22 capex target is Rs130bn/Rs160-170bn. Rs93bn has already been incurred in FY21.

- Company expects to match FY20 volumes: Current production run rate is >2.2mtpd, which if sustained (or bettered), will take FY21 coal production to FY20 levels (602mnte). Current offtake run rate is >1.8mtpd, which needs to improve to reach FY20 levels.

- May announce another interim dividend in addition to Rs7.5 interim dividend already announced. Starting this year, CIL will payout dividend 2-3 times a year. It has assured 2 more dividends in FY21 and stable payouts in the years ahead as well.

- Valuation: We maintain our BUY rating but reduce our DCF-based target price to Rs234 (earlier: Rs240) incorporating lower e-auction realisation and lower other income due to lower cash on high receivables, and also reducing offtake conservatively by 5mnte/10mnte in FY22E/FY23E. The stock is currently trading at 4.6x P/E and 2.3x EV/EBITDA on FY23E basis with 40% RoE and 15% dividend yield.

Shares of COAL INDIA LTD. was last trading in BSE at Rs.132.3 as compared to the previous close of Rs. 133.85. The total number of shares traded during the day was 740308 in over 3854 trades.

The stock hit an intraday high of Rs. 134.85 and intraday low of 132. The net turnover during the day was Rs. 98550609.

Source : Equity Bulls

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