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MOSL: COAL INDIA(Neutral)- Pressure on realisation,higher cost dent PAT growth,Cut FY14/15E earnings by ~3%




Motilal Oswal Securities Ltd.


18 Nov 2013





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Coal India (COAL IN, Mkt Cap USD28.4b, CMP INR285, Neutral) Nalin Bhatt (NalinBhatt@MotilalOswal.com) / Aditya Bahety (Aditya.Bahety@MotilalOswal.com) PAT impacted by lower FSA realizations: Coal India (COAL) reported PAT of INR30.6b, flat YoY and 7% below estimate, led by lower realizations and higher costs. Revenues were lower due to dip in average realization to INR1,412/ton – against INR1,429/ton in 1QFY14 and INR1,432/ton in 2QFY13. COAL’s 2Q realizations are usually higher than 1Q, given usage/supply of higher grade coal (due to monsoon). Realizations were lower despite 2QFY14 being the full quarter reflecting price increase taken in May 2013. FSA realizations declined by INR34/ton QoQ and INR20/ton YoY. Dip in FSA realizations could be owing to grade mix change. Market-linked realizations above expectation: E-auction realizations were in-line (INR2,220/ton v/s our estimate of INR2,250/ton). Market-linked revenues were higher than we had estimated (largely led by volumes), while FSA revenues were lower. Residual asking growth rate to meet FY14 volume target appears high: Total production in 2QFY14 was 97.6m tons (v/s our estimate of 95m tons), while sales were 109.1m tons (v/s our estimate of 108m tons). COAL has a target to produce 481m tons and dispatch 492m tons in FY14, implying production/offtake growth rate of 8.3%/10% in the remaining five months – appears high on already higher base of 2HFY13. Cutting earnings estimates: We cut our earnings estimate by ~3% to factor lower FSA realizations. We expect COAL to report EPS of INR28.5b in FY14 (up 2%) and INR30.5b in FY15 (up 7%). The stock trades at 9.3x FY15E EPS and 2.8x FY15E BV.

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