MOSL: THE INSITES – COAL INDIA-Chhattisgarh rail lines progress a mixed bag-6-7% volume growth and price hike to drive 31% earnings CAGR

THE INSITES – COAL INDIA: Chhattisgarh rail lines progress a mixed bag; 6-7% volume growth and price hike to drive 31% earnings CAGR; maintain Buy We revisited two railway projects that are aimed at improving coal evacuation – DK line and GP line – in Chhattisgarh after 2-3 years. While the DK line is progressing well, work on the GP line is moving very slowly. Existing evacuation infrastructure can handle planned growth at SECL and MCL for a couple of years but not beyond. The GP and/or JB-HM projects are critical for additional coal dispatches to North and West India. We believe Coal India (COAL) will have to supply more coal to power plants in proximity due to evacuation bottlenecks. Volume growth of 6-7%, operating leverage, closure of unviable underground mines, price hikes and focus on operating efficiencies should drive 31% CAGR in EBITDA and EPS over FY18-20. We maintain Buy. GK line progressing well, but work on GP line very slow The DK line (evacuation capacity of 25-30m tonnes) is progressing well. Land acquisition is complete. Earth work and bridges are in advanced stages. Work on spur lines is pending. We expect project completion by the end of CY19. The GP line (evacuation capacity of 60-80m tonnes) is moving very slow. It could take 3-4 years for project completion. In the absence of the GP line, most of the additional coal production of SECL and MCL (IB valley) going to North and West India will have to be evacuated by the HM line. However, the section between Jharsuguda and Bilaspur on the HM line (JB-HM) is already overloaded. Another line is being added on JB-HM, but work is slow due to heavy traffic. It could take a few more years for completion.