Professional Documents
Culture Documents
Coal India
BSE SENSEX S&P CNX
35,981 10,802 CMP: INR234 TP: INR338 (+44%) Buy
Sputtering production growth impacting volumes
Reducing estimates by 5-7%; Valuations and dividend yield attractive
Lowering volume growth expectation as production sputters
Coal India’s (COAL) coal production growth has started sputtering (Exhibit 2:). It has
Stock Info
Bloomberg COAL IN reached a point where growth of dispatches will suffer not only in FY19E, but also
Equity Shares (m) 6,207 in FY20E. COAL builds inventories during 2H of any financial year in order to meet
M.Cap.(INRb)/(USDb) 1452.2 / 20.7 demand in the 1H of the next financial year, when production is usually lower due
52-Week Range (INR) 317 / 229 to seasonally high heat followed by monsoons. Unfortunately, COAL’s inventories
1, 6, 12 Rel. Per (%) -2/-11/-23
are now significantly lower than the historical levels (Exhibit 3:). Our channel
12M Avg Val (INR M) 1330
checks suggest that COAL is unlikely to surprise positively in the remaining three
Free float (%) 21.7
months of FY19E. SECL is struggling with production growth. Talcher coal fields
Financials Snapshot (INR b) have inventories but offtake is an issue, while IB valley’s mines are suffering from
Y/E Mar 2018 2019E 2020E slow land acquisition. Various government agencies and COAL’s top management
Net Sales 858.6 977.4 992.5
need to work on a war footing to address these issues, else production growth will
EBITDA 203.1 242.3 274.4
PAT 118.9 159.5 178.0 suffer. Therefore, it has become inevitable that we tone down our expectations.
EPS (INR) 19.2 25.7 28.7 We are reducing our sales estimates by 1%/2% to 612mt/645mt for FY19E/FY20E.
Gr. (%) 26.3 34.1 11.6
BV/Sh (INR) 32.0 34.5 37.4
Power plants restocking demand squeezing high margin E-auction volumes
RoE (%) 35.4 74.4 76.7 Low inventory level at power plants (Exhibit 4:) is another factor that will impact
RoCE (%) 58.4 94.3 95.7 earnings of COAL because more coal will be dispatched to power plants on priority
P/E (x) 12.2 9.1 8.2 basis, which will leave behind lower tonnage for high margin E-auction (Exhibit 6:).
P/BV (x) 7.3 6.8 6.3 Although low inventories at power plants in FY18 was a result of voluntary
Shareholding pattern (%)
destocking during FY17, the lower level in FY15 and FY19 are a result of slower-
As On Sep-18 Jun-18 Sep-17 than-expected growth in domestic coal production (Exhibit 5:). Coal dispatches
Promoter 78.3 78.3 78.9 grew 12% in FY18 and continue to grow at 11% so far in FY19E. Since inventories at
DII 13.0 13.2 11.9 power plants remain low, the restocking demand will continue to drive higher
FII 5.7 5.4 5.6
demand in FY20E as well. Therefore, we need to reduce E-auction volumes by 3%
Others 3.0 3.1 3.7
to 79mt in FY19E and by 25% to 69mt in FY20E. A scarcity of coal for non-power
FII Includes depository receipts
will ensure that E-auction prices remain high. Therefore, we are increasing E-
Stock Performance (1-year) auction realization by 10% to INR2200/t for FY20E, which is still a decline of 12%
Coal India YoY.
Sensex - Rebased
360
Reducing earnings by 5-7%; valuations are attractive
320
We are reducing adj. EBITDA estimates by 5%/6% to INR242/274b for FY19E/20E
280
on combined impact of reduction in volumes and increase in E-auction prices as
240
discussed above. EPS is reduced by 5%/7% for FY19E/20E. Stock is trading at an
200
attractive valuation i.e. adj. EV/EBITDA of 4.6x/4.1x, P/E of 9.2x/8.3x and dividend
Jul-18
Apr-18
Jan-18
Jan-19
Oct-18
Operating metrics
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Production 494 539 554 573 618 657 696
YoY (%) 7.2 9.0 2.9 3.3 7.9 6.3 6.0
Realization (Rs/t)
Raw Coal (FSA) 1,327 1,309 1,301 1,257 1,321 1,323 1,324
E-auction coal 2,450 1,839 1,536 1,839 2,500 2,200 2,000
Beneficiated Coal 2,348 2,328 3,049 3,023 2,877 2,877 2,877
Others 2,593 2,611 2,914 3,249 2,877 2,877 2,877
Average 1,472 1,415 1,393 1,409 1,518 1,460 1,439
% YoY 0.8 (3.8) (1.6) 1.2 7.7 (3.8) (1.4)
Financials (Rs/ton)
Adj. Revenues 1,515 1,459 1,443 1,480 1,597 1,539 1,519
Adj. EBIDTA 432 403 277 350 396 425 419
PBT 441 403 269 312 378 394 384
PAT 280 267 173 205 261 276 269
8 January 2019 2
Coal India
17
16
16
15
13
13
13
13
13
12
12
11
11
11
10
10
10
8
7
7
7
6
6
6
6
6
5
5
4
4
4
3
3
3
2
1
1
-1
0
0
-2
-2
-3
-4
-4
-5
-7
-10
40
44
47
47
48
57
42
41
39
35
36
37
44
47
52
53
51
59
40
43
43
37
32
35
44
50
54
56
54
66
38
41
40
37
38
39
46
51
55
57
54
72
45
47
45
41
39
40
50
52
54
Jun-15
Jun-16
Jun-17
Apr-15
Jun-18
Dec-14
Feb-15
Aug-15
Apr-16
Dec-15
Feb-16
Aug-16
Apr-17
Dec-16
Feb-17
Aug-17
Apr-18
Dec-17
Oct-14
Feb-18
Aug-18
Dec-18
Oct-15
Oct-16
Oct-17
Oct-18
Source: MOSL, Company
Coal India’s low inventories Exhibit 3: Coal inventories at Coal India (in mt)
are a lead indicator for slow FY19 FY15 FY16 FY17 FY18
dispatch growth in 1HFY20 80
60
40
50 44
20 39
32 25 21 21 22 24
0
Apr
Aug
Sep
Nov
Jan
Feb
May
Mar
Jun
Jul
Oct
Dec
Source: MOSL, Company
Exhibit 4: Coal inventories at power plants remain low (in mt)
FY19 FY15 FY16 FY17 FY18
48
36
24
12
0
Jul-14
Jun-14
Nov-14
Apr-14
May-14
Aug-14
Dec-14
Sep-14
Jan-15
Feb-15
Mar-15
Oct-14
-5
-10 -7
FY15 FY16 FY17 FY18 FY19E
Source: MOSL, Company
8 January 2019 3
Coal India
92 96 97
76 74 75 80 74
61 66 51 60 70 67
33 39
17 19 15 22 22 24 26 25 25 19 20 30 24
12 4 29 4 15 8 6 7 7 13 14 15 6 6 4 6 9 10 9 6 7 4 12 11 5 5 7 6 0 3
Jun-16
Jun-17
Jun-18
Aug-16
Apr-17
Dec-16
Feb-17
Aug-17
Apr-18
Dec-17
Feb-18
Aug-18
Oct-16
Oct-17
Oct-18
Source: MOSL, Company
8 January 2019 4
Coal India
8 January 2019 5
Coal India
8 January 2019 6
Coal India
8 January 2019 7
Coal India
NOTES
8 January 2019 8
Coal India
8 January 2019 9
Coal India
****************************************************************
The associates of MOSL may have:
- financial interest in the subject company
- actual/beneficial ownership of 1% or more securities in the subject company
- received compensation/other benefits from the subject company in the past 12 months
- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on
the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL
even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)
- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOSL also earns DP income from
clients which are not considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the
research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature.
The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing
in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views
expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade
securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from
time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or
may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither
the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue
or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse
and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing
this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980
4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080
1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-38281085.
Registration details: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412.
AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual
Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd.
is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.
8 January 2019 10