Coal India's Q1FY20 results (Outperformer) - Cost control; inexpensive valuation
Q1FY20 result- Higher realisation and cost control boost EBITDA
Coal India reported adj EBITDA ex-OBR of Rs. 75.1bn (IDFCe: Rs 72.6bn), up 13.5% yoy despite flattish volumes primarily due to higher realisation and cost control.
- Coal sales volume at 153mt, was flat yoy with 85% of coal being supplied under FSA (85% in Q1FY19). Volume under FSA stood at 130mt (flat yoy), whereas e-auction volumes stood marginally down at 19.1mt.
- Coal realization under FSA stood at Rs 1,370/t, up 4% yoy (down 2% qoq). However, realisations under E-auction declined sharply to Rs2,155/t, down 10% yoy (down 22% qoq). Overall, blended realisation stood up 2% qoq to Rs1,513/t.
- CoP ex- employee cost was down 7% yoy to Rs491/t. This is the 2nd consecutive year of fall in mining cost on a per tonne basis (Q1FY18: Rs559/t, Q1FY19: Rs526/t). Employees cost at Rs99bn, was up 3% yoy. As a result, EBITDA/t stood at Rs489, up 13% yoy.
Key Positives: Higher FSA realisation, lower ex-employee CoP
Key Negatives: Lower e-auction prices, higher employee cost
Impact on financials: Reduce FY20E/FY21E EBITDA by 1.9%/0.6% to factor in lower e-auction prices
Valuation & view: Reiterate Outperformer with revised TP of Rs282
We expect COAL’s volumes to grow at a CAGR of 4% yoy to 664mt over FY19-21E. We expect recovery in volumes in H2FY20E, though coal has disappointed on volume growth so far (down 0.8%yoy in 4MFY20). Coal India’s e-auction prices have corrected sharply in Q1FY20, as a result, we have factored in lower e-auction prices. On the cost front, Coal India has been showing decline in CoP ex-employee on consistent basis, which is a positive. However, mining cost ex-employee may not decline further. We roll-over valuation to FY21 earnings. With limited EBITDA growth of 1.8% CAGR over FY19-21E and risk of increasing share supply by further reducing Government of India’s stake, we value COAL at 5x FY21E EV/EBITDA. At 5.0x FY21E EV/EBITDA, we arrive at a target price of Rs282/sh. At CMP, the stock is trading inexpensive at 3.6x FY20E EV/EBITDA. The stock provides a dividend yield of ~10% on expected DPS of Rs20. Reiterate Outperformer. ​
Coal India is engaged in the identification, exploration, and production of coal in India. Co. offers coking coal primarily for use in steel making and metallurgical industries, and for hard coke manufacturing; semi coking coal for use as blend-able coal in steel making, merchant coke manufacturing, and other metallurgical industries; NLW coking coal for use in power utilities and non-core sector consumers; non-coking coal for use as thermal grade coal for power generation, as well as for cement, fertilizer, glass, ceramic, paper, chemical and brick manufacturing, and for other heating applications.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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