MOSL: COAL INDIA (Buy) : Takes price hike disguised as evacuation charges-Volume growth accelerating, concerns are behind

COAL INDIA: Takes price hike disguised as evacuation charges; Volume growth accelerating, concerns are behind; Buy

(COAL IN, Mkt Cap USD26.1, CMP INR270, TP INR335, 24% Upside, Buy)

Evacuation charges to boost operating income

• Coal India (COAL) has introduced evacuation facility charges of INR50/t on all coal dispatches, except those through rapid loading arrangement. We estimate this will apply to ~80% of COAL’s supplies. The charges are effective immediately (from 20th December 2017).
  
• The company estimates additional revenue of INR8b for the remaining period of FY18 and INR25b for full-year FY19. The charges will be reported under other operating income. We were already building in a similar hike, and thus, our estimates are unchanged.
  

Restocking will drive dispatches; E-auction prices and volumes higher

• COAL’s dispatches grew ~5% YoY (to 50.7mt) in November, even as coal-based power generation was flat YoY. Coal inventories at the power plant remain low at just 9 days of consumption or ~12mt. Restocking to normative 20-25 days of consumption will aid dispatch growth, even if power generation were to remain weak due to seasonal weather conditions.
  
• Premium over the notified price in e-auction increased further to ~76%, while volumes increased to ~9mt in October. The premium and volumes both are higher than the past few months, driven by import substitution as prices in the global market have been trending up.