Coal India's Q4FY18 results (Outperformer) - Price led growth
Q4FY18 result- Higher coal price, lower cost inflates EBITDA
- Coal India (COAL IN)’s Q4FY18 EBITDA reflects that the company captures price hikes taken in January 2018 (average price hike of ~Rs110/t on FSA coal) and is marginally affected by grade slippages. This coupled with higher e-auction price, higher volume and lower cost inflated EBITDA. Adjusted EBITDA stood at Rs100.6bn, up 104% yoy and EBITDA/t of Rs634, up 94% yoy.
- Coal realization under FSA (excl incentives of Rs 5bn) stood at Rs 1,364/t, up 3.7% yoy and 15.4% qoq, reflecting the effect of price hikes taken in January 2018. The effect of higher evacuation charges levied in December 2017 (Rs50/t) is reported in other operating income which was up 118% yoy to Rs18bn. E-auction price came in at Rs 2,112/t, up 31% yoy and 6% qoq. As a result, blended coal prices (ex-incentives & evacuation charges), at Rs1,549/t, were up 8% yoy and 14% qoq.
- Employee cost of Rs166.5bn includes Rs73.8bn one time non cash gratuity expenses (due to increase in gratuity ceiling limit from Rs1m to Rs2m). We treat this as an exceptional item. It also includes the provision of Rs6.47bn towards pay revision of executives. Adjusted for one off gratuity expense, employee cost stood at Rs92.7bn. Cost ex-employee stood at Rs477/t, down 20% yoy.
Key Positives: Higher coal prices under FSA and e-auction, lower CoP; absence of any major effect of grade slippage; Debtor days reduced to 38 v/s 52 in FY18
Impact on financials: Increase FY19E/FY20E EBITDA by 4% each to factor in lower cost
Valuation & view: Reiterate Outperformer with TP of Rs378
The full benefits of increase in coal prices under FSA in January 2018 will be reflected in FY19. Volume growth, higher FSA & e-auction coal prices and cost control will lead to 38% yoy increase in EBITDA in FY19 to Rs281bn. The higher employee cost on account of wage revision for executives & non-executives has now been factored in. 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 ~6% (DPS of Rs22 in FY19E), restricting any downside. 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.
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