Coal India - Coal makes a comeback - ICICI Securities

Coal India (CIL) has reported higher-than-estimated PAT in Q4FY21, buoyed by higher volumes, improved QoQ realisation and lower taxes. At Rs45.9bn, PAT was lower by only 0.8% YoY (I-Sec: Rs41.5bn), despite higher contractual expense and lower other income due to decline in cash balance and lower rates. Revenue was 3.1% lower YoY at Rs267bn as although average realisation improved 5.4% QoQ, it was still 4.9% lower YoY at Rs1,484/te. CIL announced Rs3.5 as the final dividend taking FY21 payout to Rs16/sh (10% yield at CMP). Aided by strong coal PLFs, increasing power demand and opening up of export opportunities, e-auction premiums are expected to continue improving. We remain positive for a significantly better FY22. Maintain BUY.

Q4FY21 result - Key takeaways:

- Offtake was at 165mnte, up 0.6% YoY. Production was 157mnte, down 4.8% YoY.

- PAT was above estimates at Rs45.9bn, lower only 0.8% YoY (I-Sec: Rs41.5bn). This was mainly due to higher overall volumes, improved QoQ e-auction, FSA realisations and lower taxes. PAT performance came despite higher contractual expense and lower other income due to decline in cash balance and lower rates.

- CIL continued to control employee costs, the largest cost component (55% of opex).

- Revenue in Q4 came in 3.1% lower YoY at Rs267bn, supported by higher offtake but affected by decline in average realisation by 4.9% YoY to Rs1,484/tn.

- EBITDA at Rs63.8bn was better than estimates (I-Sec: Rs57.2bn) due to lower OBR adjustment (-43% YoY).

- FSA realisation (Rs1,392/mnte) was lower due to higher sale of low grade coal.

- E-auction premiums increased by 20% QoQ to Rs1,752/mnte.

- FSA/E-auction *volumes* were -4.5%/+37.6% YoY in Q4FY21 at 132.9mt/28.9mt.

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

- Good recovery in H2FY21: CIL's FY21 revenue/EBITDA/PAT improved significantly in H2FY21, but was still lower by 6.3%/15.3%/23.9% YoY at Rs900bn/Rs186bn/Rs127bn, respectively, due to the severity of H1FY21 earnings. Production/offtake was lower, only 1%/1.3% YoY at 596mt/574mt. CIL's e-auction volumes increased 44% YoY at 94.4mnte. Receivables declined to Rs196bn from the highs of Rs238bn in Oct'20-end.

- Realisations continue to improve: CIL's e-auction realisation has improved significantly since declining to as low as Rs1,437/te during Q2FY21 to Rs1,752/te in Q4FY21. E-auction volumes also increased by 30% during this period to 29mnte. We expect both e-auction volumes and realisations to continue improving and realisations reaching pre-covid levels in the next few quarters, as power demand improves and with export of auctioned coal now allowed.

- Final dividend of Rs3.5 takes FY21 payout to Rs16/sh: CIL announced a final dividend of Rs3.5/sh, taking the total dividend for FY21 to Rs16/sh, which translates into a payout of 78% on FY21 EPS of Rs20.6. At CMP, dividend yield is 10%. Going forward, CIL's dividend payout stability will continue and payouts shall be 2-3 times every fiscal.

- Valuation: We maintain our BUY rating and DCF-based target price of Rs234, with offtake estimates at 630mnte/660mnte for FY22E/FY23E, respectively. The stock is currently trading at 5.5x P/E and 3x EV/EBITDA on FY23E basis with 39% RoE.

Shares of COAL INDIA LTD. was last trading in BSE at Rs.157.1 as compared to the previous close of Rs. 159.3. The total number of shares traded during the day was 1518398 in over 11270 trades.

The stock hit an intraday high of Rs. 162 and intraday low of 156.7. The net turnover during the day was Rs. 240329262.

Source : Equity Bulls

Keywords