MOSL: COAL INDIA (Buy)-Power sector dragging FSA realization but boosting e-auction prices

Coal India: Power sector dragging FSA realization but boosting e-auction prices; strong earnings growth

(COAL IN, Mkt Cap USD22.5b, CMP INR264, TP INR358, 35% Upside, Buy)

• 2QFY19 revenue grew 22% YoY to ~INR222b (our estimate: INR227b), led by (1) higher FSA realization (up ~7% YoY to INR1,308/t v/s our estimate of INR1,325/t), (2) higher e-auction realization (up 61% YoY/8% QoQ to INR2,592/t v/s our estimate of INR2,400/t) and (3) increased volumes (up ~6% to 137.3mt).
• EBITDA (ex-OBR) increased 266% YoY to ~INR47b (our estimate: INR62b). The miss can be attributed to: (1) higher provisions, (2) revenue miss due to lower-than-estimated e-auction volume and FSA realization and (3) higher cost in stock adjustment. Employee cost was in line with our estimate at INR90b.
• PAT of INR30.8b came in lower than our estimate due to higher OBR provision, marginal revenue miss and higher cost of stock adjustment, partly offset by higher other income.

Valuations attractive; Maintain Buy

• COAL is supplying higher share of production on a priority basis to the less-remunerative power sector, which is the reason behind the miss in FSA realization. Demand for domestic coal increases when imports are expensive, as is the case now. However, COAL is benefitting from higher e-auction prices and operating leverage.
• We lower our e-auction volume estimate by 20mt to 82mt, raise our e-auction price estimate by INR800/t to INR2,500/t and increase our adj. EBITDA estimate by 1% to INR254b for FY19.