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Coal India (COAL) - Qtr. Update - Dated - August 05, 2013




Axis Capital Limited


06 Aug 2013





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 Q1 EBITDA at Rs 48 bn (down 12% YoY) was below our estimate of Rs 54 bn mainly due to lower than expected realization. Average realization was Rs 1,430 (down 2% YoY) vs. est. of Rs 1,550/ton. This was due to (a) lower e-auction realization (Rs 2,140/ton, down 16% YoY and 7% QoQ) and (b) lower FSA realization on higher proportion of sub-grade volumes during the quarter  Realization should improve from Q2 led by the full impact of price increase (~5%) effective end-May. Our average realization estimate for FY14 is Rs 1,560 (up 2%)  Volumes for the quarter were 115 mnt (+2% YoY)  Offer for sale (OFS) to remain an overhang on the stock: Coal India has corrected ~20% since beginning of Jun ‘13 due to OFS concerns. Based on initial news reports, the government had planned to raise Rs 200 bn through OFS/buyback. However, there is no clarity if any one or both routes will be exercised by the government  We cut our EPS estimates for FY14 to Rs 29 (Rs 31 earlier) and for FY15 to Rs 32 (Rs 34 earlier) to factor in lower e-auction realization and volume estimates. Maintain BUY with revised DCF-based TP of Rs 317 (Rs 434 earlier), 20% upside from CMP of Rs 263 – We reduce our volume growth assumption to 4% (earlier 5.5%) for FY14 & 4.5% (earlier 5.5%) FY15 onwards and reduce premium on e-auction realization to 80% (vs 90% earlier) – We also increase discount rate for our DCF valuation to 14% (12.7% earlier) to factor in higher interest rates Regards, Jagdishwar Toppo (Executive Director – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1103 Nitesh Jain (Sr VP – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1145 Sujan Sanisetty (Asst VP – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1122

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