Coal India's Q1FY19 results (Outperformer) - Growth available at a div yield of 8%

Q1FY19 result- Higher coal price & volumes, lower cost inflates EBITDA

• Coal India (COAL IN)’s Q1FY19 EBITDA reflects the benefits of high FSA & e-auction coal prices, high volume coupled with low mining cost. Employee cost included one-time cost of ~Rs3bn related to FY18 which was after finalisation of pension benefits with employees. Adjusted for the above, EBITDA ex-OBR stood at Rs69.2bn, up 103% yoy and EBITDA/t of Rs452, up 82% yoy. The results could have been better with higher e-auction volume as the company received bids for ~30mt of e-auction volume but due to delay in lifting, booked ~19mt only in Q1FY19.
• Coal sales volume at 153mt, was up 11% yoy with 85% of coal being supplied under FSA (78% in Q1FY18), leading to adverse volume mix. However, this did not affect profits adversely due to higher prices.
• Coal realization under FSA stood at Rs 1,313/t, up 9% yoy reflecting the effect of price hikes taken in January 2018. Due to scarcity of coal under e-auction and continued high demand, E-auction price moved up sharply and came in at Rs 2,399/t, up 51% yoy and 14% qoq. As a result, blended coal prices, at Rs1,477/t, were up 10% yoy. 
• Employee cost of Rs96bn included ~Rs3bn one-time cost related to FY18 which was after finalisation of pension benefits with employees.  The savings on lower overtime charges (~Rs20bn in FY18) are yet to kick in. We expect employee cost has peaked in Q1FY19 and will fall in a subsequent quarter. 
• Cost ex-employee stood at Rs526/t, down 6% yoy despite increase in diesel cost which is a positive.

Key Positives: Higher volume, coal prices under FSA and e-auction, lower CoP

Impact on financials: Increase FY19E EBITDA by 5% to factor in higher e-auction coal prices and higher coal volume

Valuation & view: Reiterate Outperformer with TP of Rs378

The employee cost has peaked and fall in subsequent quarter. E-auction volume will increase from Q1FY19 level. Volume growth, higher FSA & e-auction coal prices and cost control will lead to 46% yoy increase in EBITDA in FY19 to Rs296bn. We value Coal India at 7.0x FY20E EV/EBITDA and arrive at a TP of Rs378. The stock is available at a dividend yield of ~8% (DPS of Rs22 in FY19E). Reiterate Outperformer.