Coal India (COAL IN)

Transcription

1 Coal India (COAL IN) Rating: HOLD CMP: Rs248 TP: Rs270 December 26, 2018 Company Report Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating HOLD BUY Target Price Sales (Rs. m) 962,283 1,005, ,815 1,037,971 % Chng. (1.5) (3.1) EBITDA (Rs. m) 265, , , ,756 % Chng. (3.8) (7.8) EPS (Rs.) % Chng. (6.7) (10.0) Key Financials FY17 FY18 FY19E FY20E Sales (Rs. bn) ,006 EBITDA (Rs.bn) Margin (%) PAT (Rs. bn) EPS (Rs.) Gr. (%) (35.1) (25.6) DPS (Rs.) Yield (%) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) PE (x) P/BV (x) Key Data COAL.BO COAL IN 52-W High / Low Rs.317 / Rs.228 Sensex / Nifty 35,470 / 10,664 Market Cap Rs.1,541bn/ $ 22,010m Shares Outstanding 6,207m 3M Avg. Daily Value Rs m Shareholding Pattern (%) Promoter s Foreign 5.68 Domestic Institution Public & Others 2.98 Promoter Pledge (Rs bn) - Stock Performance (%) 1M 6M 12M Absolute (3.3) (6.2) (6.6) Relative (4.6) (5.7) (10.6) Kamlesh Bagmar kamleshbagmar@plindia.com Amit Khimesra amitkhimesra@plindia.com Downgrade to Hold on poor operational performance Coal India (COAL) FYTD Volume growth slowed to 5.5% while, the growth in August--December 18 was mere 1% despite severe shortage of coal, led by improved demand from Power sector and pick-up in economic activity. Overall volumes growth would remain weak for rest of FY19e and FY20e due to poor rail connectivity at newly commissioned mines and peaked out Road/Belt route. We factor in 4.8%/5.5% growth in FY19e/FY20e. As happened in the past, margin rich E-auction volumes faced the brunt to meet the volumes tied-up in Power and Non-power FSAs. E-auction volumes/month fell by ~65% in Oct-Dec 18 to 2mn tonnes (t) against average 6mn t. Given the limited buffer for E-auction due to strong demand in FSA and low production growth, we expect E-auction volumes to fall to 4-year low at 65mn/60mn t in FY19-FY20e. Led by weak operational performance and rising headwinds due to Govt policy on opening up the sector. We trim our multiple by 9% to 10xFY20e P/E and downgrade the stock to HOLD with TP of Rs270 (Rs330 earlier). Rich dividend yield on depressed earnings: Impacted by grade slippages, wage revision and elevated capex, COAL s FCFE grew at a tepid CAGR of 2.5% over FY14-FY18 less than half of growth in volumes. We expect FCFE growth to languish between % in FY19e-FY21e due to stable earnings growth and high capex intensity with investments in non-core businesses like Fertilizer and Power Plant. Investors would start getting nervous in FY21e for the next wage revision due in July Hence, we believe that high dividend high is just a mirage built on weak earnings base. Opening up of the coal sector to gather pace: Given the poor show by COAL, we strongly believe that Govt of India would take decisive action by allowing the merchant mining and auction of more coal blocks for power and non-power sector. Admittedly, it is a time-consuming policy enabler; but it would pose a strong challenge to monopolistic stature of COAL s operations. Non-power FSAs and E-auction business would face the headwind due to poor quality of service and high prices. Prices in Power FSAs would rise at slow pace due to highly sensitive customer base and nature of contracts. Cut in TP led by earnings downgrade and valuation derating: Driven by cut in overall volume growth and E-auction volume estimates, we cut our EPS estimates by 7%/10% for FY19e/FY20e. Given the unimpressive earnings outlook, capital misallocation and visible policy headwinds, we trim our P/E multiple by 9% to 10.0x FY20e. Hence, we downgrade the stock to HOLD with revised TP of Rs270 (earlier Rs330). December 26, 2018

2 (Rs bn) (mn tonnes) Exhibit 1: COAL s offtake growth expected below 6% Raw coal despatches % Change (RHS) Exhibit 2: E-auction sacrificed to meet the FSA commitments (m tonnes) Volume-LHS Realisation/t Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 (Rs) Source: Industry, PL Exhibit 3: FCFE grew at a CAGR of 2.5% in FY14-FY December 26,

3 Exhibit 4: Cash levels halved in 5 years at FY18 end (Rs bn) Exhibit 5: Dividend per share flattened out due to falling cash flows December 26,

4 Financials Income Statement (Rs m) Net Revenues 784, , ,283 1,005,608 YoY gr. (%) Cost of Goods Sold 57,253 85,090 76,126 82,712 Gross Profit 726, , , ,896 Margin (%) Employee Cost 335, , , ,949 Other Expenses 215, , , ,151 EBITDA 151, , , ,320 YoY gr. (%) (29.8) (14.5) Margin (%) Depreciation and Amortization 55,790 64,246 68,103 76,603 Balance Sheet Abstract (Rs m) Non-Current Assets Gross Block 294, , , ,841 Tangibles 294, , , ,841 Intangibles Acc: Dep / Amortization 56,165 84, , ,693 Tangibles 56,165 84, , ,693 Intangibles Net fixed assets 238, , , ,148 Tangibles 238, , , ,148 Intangibles EBIT 95,313 64, , ,717 Margin (%) Net Interest 4,117 4,318 3,000 3,001 Other Income 53,242 46,583 46,118 48,026 Capital Work In Progress 85, , , ,988 Goodwill Non-Current Investments 105, , , ,132 Net Deferred tax assets 27,328 53,551 53,551 53,551 Other Non-Current Assets 22,390 25,454 26,454 27,454 Profit Before Tax 144, , , ,742 Margin (%) Total Tax 51,735 38,081 88,939 90,184 Effective tax rate (%) Profit after tax 92,703 69, , ,557 Minority interest Share Profit from Associate Adjusted PAT 89,839 66, , ,557 YoY gr. (%) (36.2) (25.6) Margin (%) Extra Ord. Income / (Exp) 2,864 2, Reported PAT 92,703 69, , ,557 YoY gr. (%) (34.9) (25.4) Margin (%) Other Comprehensive Income Total Comprehensive Income 92,703 69, , ,557 Equity Shares O/s (m) 6,207 6,207 6,207 6,207 EPS (Rs) Current Assets Investments 5,135 2,056 2,056 2,056 Inventories 89,453 64,439 64,048 67,657 Trade receivables 124,763 86,892 73,773 76,939 Cash & Bank Balance 311, , , ,892 Other Current Assets 139, , , ,510 Total Assets 1,178,152 1,274,917 1,341,749 1,426,020 Equity Equity Share Capital 62,074 62,074 62,074 62,074 Other Equity 183, , , ,626 Total Networth 245, , , ,700 Non-Current Liabilities Long Term borrowings 3,015 10,612 15,377 15,377 Provisions 437, , , ,303 Other non current liabilities 38,197 43,666 46,666 49,666 Current Liabilities ST Debt / Current of LT Debt 27,130 4, Trade payables 38,843 45,169 50,348 54,704 Other current liabilities 374, , , ,208 Total Equity & Liabilities 1,178,152 1,274,917 1,341,749 1,426,020 December 26,

5 Cash Flow (Rs m) Key Financial Metrics Year PBT 144, , , ,742 Per Share(Rs) Add. Depreciation 29,068 30,468 32,110 38,635 EPS Add. Interest CEPS Less Financial Other Income 53,242 46,583 46,118 48,026 BVPS Add. Other 16,820 7,991 8,864 9,121 FCF Op. profit before WC changes 190, , , ,497 DPS Net Changes-WC 63, ,450 (3,460) 904 Return Ratio(%) Direct tax (89,415) (74,329) (88,939) (90,184) RoCE Net cash from Op. activities 164, , , ,217 ROIC Capital expenditures (86,761) (85,293) (90,338) (90,905) RoE Interest / Dividend Income 34,642 24,044 27,130 28,847 Balance Sheet Others 56,666 (15,514) - - Net Debt : Equity (x) (1.2) (1.5) (1.3) (1.3) Net Cash from Invt. activities 4,546 (76,763) (63,208) (62,058) Net Working Capital (Days) Issue of share cap. / premium (45,531) Valuation(x) Debt changes 18,169 (14,778) - - PER Dividend paid (151,031) (123,238) (108,279) (119,480) P/B Interest paid (306) (370) - - P/CEPS Others 2,720 2,513 3,000 3,000 EV/EBITDA Net cash from Fin. activities (175,980) (135,873) (105,279) (116,480) EV/Sales Net change in cash (6,825) (12) 20,463 23,679 Dividend Yield (%) Free Cash Flow 251, , , ,122 Quarterly Financials (Rs m) Y/e Mar Q3FY18 Q4FY18 Q1FY19 Q2FY19 Net Revenue 216, , , ,981 YoY gr. (%) Raw Material Expenses Gross Profit 216, , , ,981 Margin (%) EBITDA 46,179 1,955 46,801 39,142 YoY gr. (%) (95.8) 2,293.9 (16.4) Margin (%) Depreciation / Depletion 7,511 9,308 7,452 8,069 EBIT 38,668 (7,353) 39,349 31,074 Margin (%) 17.9 (2.7) Net Interest 974 1,127 1,103 8 Other Income 8,409 20,002 22,624 20,113 Profit before Tax 46,102 11,521 60,869 51,178 Margin (%) Total Tax 16,052 (1,420) 23,025 20,317 Effective tax rate (%) 34.8 (12.3) Profit after Tax 30,050 12,942 37,843 30,861 Minority interest (1) (1) (1) (2) Share Profit from Associates Adjusted PAT 30,050 12,942 37,843 30,861 YoY gr. (%) 4.2 (52.4) Margin (%) Extra Ord. Income / (Exp) Reported PAT 30,051 12,943 37,845 30,863 YoY gr. (%) 4.2 (52.4) Margin (%) Other Comprehensive Income Total Comprehensive Income 30,051 12,943 37,845 30,863 Avg. Shares O/s (m) EPS (Rs) Key Operating Metrics Raw coal prod (mn tn) Coal despatches (mn tn) Vol sold under FSA/MoU (mn tn) Vol sold under E-auction (mn tn) Beneficiated coal vol (mn tn) Vol sold to power utilities (mn tn) Real. / tonne (Rs) 1,393 1,409 1,476 1,459 Total cost per tonne (Rs) 1,110 1,215 1,315 1,205 Cash cost per tonne (Rs) 1,057 1,166 1,257 1,146 Employee cost / tonne (Rs) EBITDA / tonne (Rs) OBR adj / tonne (Rs) December 26,

6 Price Chart Recommendation History (Rs) Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 No. Date Rating TP (Rs.) Share Price (Rs.) 1 09-Jan-18 BUY Jan-18 BUY Feb-18 BUY Apr-18 BUY May-18 BUY Jun-18 BUY Jul-18 BUY Aug-18 BUY Oct-18 BUY Nov-18 BUY Analyst Coverage Universe Sr. No. Company Name Rating TP (Rs) Share Price (Rs) 1 ACC BUY 1,710 1,540 2 Ambuja Cement Hold Coal India BUY Heidelberg Cement India BUY Hindalco Industries Accumulate Hindustan Zinc Accumulate Jindal Steel & Power BUY JK Lakshmi Cement Hold JSW Steel BUY NMDC Reduce Shree Cement Hold 17,500 15, Steel Authority of India Hold Tata Steel BUY The Ramco Cements Hold Ultratech Cement Hold 3,820 3,610 PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly December 26,

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