Coal India - Event Update - E-auctions under single window to result in higher realisations

Quick Pointers:

- Non-linkage coal to be auctioned under a single E-auction window instead of current five different segments.

- New policy would result in incremental revenue of Rs10bn on E-auction volumes of 40mnt for power sector on account of higher reserve prices.

Govt of India decided to dissolve the current system of Coal India's (COAL) auction of non-linkage coal through multiple windows. Currently, auction is conducted under five different windows like Spot (open for all the sectors including traders), Special forward E-auction for Power sector, Exclusive E-auction for Non-power, Special Spot E-auction and Special Spot E-auction for coal importers. In the new policy, all the auctions would be collapsed into one single auction which will put all sectors at par. Barring E-auction for power sector, all other segments garner strong realisations due to significantly better profitability of non-power sectors. E-auction for non-power constituted ~60% of COAL's total E-auction volumes with realisations at ~1.5x of power sector. We expect an incremental revenue/EBITDA of Rs10bn factoring an additional realisation of Rs250/t on 40mnt of E-auction power volumes on account of higher reserve prices.

COAL displayed strong performance on sales volume over last six months. However, delay in price hike of FSA (85% total volumes) remained a dampener. On balancing side, strong pick-up in E-auction realisations helped to negate absence of increase in FSA prices partially. Underpinned by improved operational performance and better outlook on both FSA (likely hike post state elections) and E-auction prices, we maintain Accumulate rating with TP of Rs192 (earlier TP Rs172), EV/EBITDA of 2.7x FY23e.

- E-auction for power sector to come at par with other non-power sectors: Floor price for E-auction in power sector are determined at ~15% lower compared to auctions for non-power sectors.

- Realised prices in auctions were mostly at par with floor prices. With increase in floor prices, we estimate an incremental annual Revenue/EBITDA of Rs10bn on 40mnt of volumes sold in auction to power sector.

- Single auction window to help cater strong demand of Non-power sectors: ~40% of total E-auctions quantity is sold under special window for power sector. Given the restricted profitability and controlled market conditions, realisations remained significantly lower compared to other auctions. Under new policy, COAL would be able to exploit strong demand from non-power sectors amidst sharp increase in global prices.

- Hike in linkage coal prices, likely post state elections: We expect increase in linkage prices by 10% post ongoing state elections. Strong performance on volumes, record spend on capex, sharp increase in costs, ongoing wage revision (due from 1st July'21) and long gap of 4 years since last increase presents strong case for price hike.

Shares of Coal India Limited was last trading in BSE at Rs. 187.30 as compared to the previous close of Rs. 182.90. The total number of shares traded during the day was 656243 in over 5985 trades.

The stock hit an intraday high of Rs. 188.45 and intraday low of 183.20. The net turnover during the day was Rs. 122755275.00.

Source : Equity Bulls

Keywords

CoalIndia INE522F01014 EAuction HigherRealisation PrabhudasLilladher