COMPANY UPDATE Dec-15 Jan-16 Feb-16 Mar-16 GEOJIT BNP PARIBAS Research Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 RETAIL EQUITY RESEARCH Coal India Ltd Coal BSE CODE:533278 NSE CODE: COALINDIA Bloomberg code: COAL IN SENSEX: 26,727 HOLD Rating as per Large cap 12months investment period CMP Rs300 TARGET Rs323 RETURN 8% 10 th January, 2017 Uncertainty remains. Coal India is one of the largest coal producers in the world with coal production of 534MT in FY16. It caters to ~80% of India s total coal requirement. Consolidated revenue declined by 7.3% in Q2FY17 on account of lower volumes led by weak domestic demand and decline in E-auction realizations. EBITDA margin fell drastically by 1540bps to 4.7% on account of lower ASP s (Average selling price), higher costs and negative operating leverage. Although we expect volume offtake to improve in 2H with inventory levels normalizing at power plants, we do not expect much improvement in e-auction realization. We expect sales/pat CAGR of 6.6%/-.5% over FY16-19E. Given the uncertainties regarding impending wage negotiation and pick-up in power demand, we assign a Hold rating on the stock with a target price of Rs.323 (based on 7x FY19E EV/EBITDA). Lower volumes, weak realisations and higher cost impacted margins CIL posted revenue decline of 7.3% in Q2FY17 on account of 5% decline in volumes and 3% reduction in realizations. FSA (Fuel supply agreement) volumes declined by 9.7% to 93MT on account of weak demand while E-auction volumes rose by 27% to 19MT. However, E- auction realizations declined by 24.6% to Rs1348/t largely due to higher supplies and weak demand. Weak e-auction realization coupled with higher provision for impending wage hike (Rs711cr) led to 78% fall in EBITDA. Hence, company reported operating margin at 4.7% in Q2FY17 against 19.5% in Q2FY16. Due to poor operating performance and higher tax outgo, PAT stood at a meagre Rs600cr. Recovery in E-auction prices seems grim in the near-term The differential between imports and E-auction prices has narrowed down significantly as international thermal coal prices have declined by 23% in the past one month to Rs4,757/t. This is due to relaxation of the 276 operating days rule in coal mines by the Chinese authorities. Hence, we do not expect any sharp increase in international prices in near term due to surplus supply and muted demand. Outlook & Valuation We expect CIL revenue to grow at a CAGR of 5.1% over FY16-19E on account of Government s push towards enhancing CIL s production to reduce coal imports, pickup in power generation and volume improvement from linkage auctions. Hence, we estimate volume CAGR of 5.5% over FY16-19E. However, we expect EBITDA and PAT to report a CAGR of 3% and -0.5%, respectively over FY16-19E led by subdued increase in realization, increasing operating costs and higher depreciation (as a result of higher capex). Hence, we recommend HOLD rating on the stock with a target price of Rs323 (based on 7x FY19E EV/EBITDA). Company Data Market Cap (Rs cr) 186,253 Enterprise Value (Rs cr) 151,804 Outstanding Shares (cr) 621.6 Free Float 20% Dividend Yield 9.3 52 week high 350 52 week low 272 6m average volume (cr).3 Beta 0.8 Face value 10 Shareholding % Q4 FY16 Q1 FY17 Q2 FY17 Promoters 79.7 79.7 79.7 FII s 8.5 8.1 7.8 MFs/Insti 8.6 9.8 10.3 Public& Others 3.2 2.5 2.3 Total 100 100 100 Price Performance 3mth 6mth 1 Year Absolute Return -10% -6% -9% Absolute Sensex -7% -1% 1% Relative Return* -3% -5% -10% *over or under performance to benchmark index 400 200 COALINDIA Sensex (Rebased) Y.E Mar (Rscr) FY17E FY18E FY19E Sales 77,600 85,765 94,370 (%) -0.5% 10.5% 10.0% EBITDA 13,898 17,211 19,996 EBITDA margin (%) 17.9 20.1 21.2 PAT Adj 10,438 12,200 14,041 (%) -26.7% 16.9% 15.1% Adj.EPS 16.8 19.7 22.6 (%) -25.4% 16.9% 15.1% P/E 17.8 15.3 13.3 P/B 7.2 8.1 8.4 EV/EBITDA 11.2 9.1 7.7 RoE (%) 35.0 49.9 61.8 Adj. D/E 0.0 0.0 0.0
Quarterly Financials (Consolidated) Profit & Loss Account (Rs cr) Q2FY17 Q2FY16 Q1FY17 QoQ H1FY17 H1FY16 Sales 16,213 17,490-7.3% 18,422-12.0% 34,634 37,008-6.4% EBITDA 743 3,407-78.2% 4,255-82.5% 4,997 8,242-39.4% Depreciation 692 651 6.3% 667 3.7% 1,359 1,289 5.5% EBIT 51 2,756-98.2% 3,588-98.6% 3,638 6,954-47.7% Interest 97 112-13.2% 89 9.0% 186 200-7.2% Other Income 1,413 1,416-0.2% 1,131 24.9% 2,543 2,841-10.5% Exceptional Items - - - - - - PBT 1,366 4,061-66.4% 4,629-70.5% 5,995 9,594-37.5% Tax 766 1,406-45.5% 1,564-51.0% 2,330 3,343-30.3% Minority Interest/ P/L of Associates (0) (0) - (0) - (0) - - Reported PAT 600 2,654-77.4% 3,065-80.4% 3,666 6,251-41.4% Adjustment - - - - Adj PAT 600 2,654-77.4% 3,065-80.4% 3,666 6,251-41.4% No. of shares (cr) 631.6 631.6 631.6 631.6 631.6 EPS (Rs) 1.0 4.2-4.9 5.8 9.9 Source: Company, Geojit BNP Paribas Research Business performance Particulars (Quantity in MT) Q2FY17 Q2FY16 Q1FY17 QoQ H1FY17 H1FY16 FSA 93 103-9.7% 107.7-13.6% 200.7 212.0-5.3% e-auction 19.1 14.7 29.9% 20.5-6.8% 39.5 30.7 28.6% Washed coal 3.1 3.1 0.0% 3.8-18.4% 6.8 6.6 4.0% By products 0.7 0.9-22.2% 1.1-36.4% 1.8 1.9-3.7% Total 115.9 121.7-4.8% 133.1-12.9% 248.9 251.2-0.9% Avg. Realizations (Rs./t) FSA 1,292 1,294-0.2% 1,239 4.3% 1,264 1,307-3.3% e-auction 1,348 1,788-24.6% 1,570-14.1% 1,463 1,994-26.6% Washed coal 2,784 2,328 19.6% 2,557 8.9% 2,658 2,276 16.8% Sales (in Cr.) FSA 12,016 13,328-9.8% 13,344-10.0% 25,367 27,707-8.4% e-auction 2,575 2,628-2.0% 3,219-20.0% 5,782 6,130-5.7% Washed coal 863 722 19.6% 972-11.2% 1,810 1,491 21.4% Source: Company, Geojit BNP Paribas Research; FSA: Fuel Supply Agreements SOTP Valuation Method FY19E EBITDA (Rs Cr) Multiple (x) EV (Rs Cr) Value/share (Rs) Adj. EBITDA EV/EBITDA 23,627 7 165,390 266 Total EV 165,390 266 Net Debt (35,379) -57 Implied M. Cap 200,770 323 Target price 323 Source: Company, Geojit BNP Paribas Research
Consolidated Financials Profit & Loss Account Sales 74,120 78,010 77,600 85,765 94,370 % change 5.0% 5.2% -0.5% 10.5% 10.0% EBITDA 17,335 18,306 13,898 17,211 19,996 % change -2.4% 5.6% -24.1% 23.8% 16.2% Depreciation 2,320 2,466 2,730 3,072 3,425 EBIT 15,015 15,840 11,168 14,139 16,570 Interest 7 21 244 58 58 Other Income 6,571 5,728 4,655 4,128 4,445 PBT 21,579 21,548 15,579 18,209 20,957 % change -5.7% -0.1% -27.7% 16.9% 15.1% Tax 7,857 7,315 5,141 6,009 6,916 Tax Rate (%) 36.4% 33.9% 33.0% 33.0% 33.0% Reported PAT 13,726 14,274 10,438 12,200 14,041 Adj* (5) (41) - - - Adj PAT 13,721 14,233 10,438 12,200 14,041 % change -9.2% 3.7% -26.7% 16.9% 15.1% No. of shares (cr) 631.6 631.6 620.7 620.7 620.7 Adj EPS (Rs) 21.7 22.5 16.8 19.7 22.6 % change -9.2% 3.7% -25.4% 16.9% 15.1% DPS (Rs) 20.7 27.4 20.0 20.0 20.0 Cash flow Pre-tax profit 21,584 21,589 15,579 18,209 20,957 Depreciation 2,322 2,459 2,730 3,072 3,425 Changes in W.C 649 (5,567) 2,582 76 (14) Others (601) (70) (200) 591 839 Tax Paid (9,572) (7,012) (5,141) (6,009) (6,916) C.F.O 14,382 11,398 15,550 15,938 18,292 Capital exp. (4,901) (5,445) (7,000) (6,000) (6,000) Change in inv. 509 8,790 (773) - - Other invest.cf 5,287 5,035 4,655 4,128 4,445 C.F - investing 894 8,379 (3,118) (1,872) (1,555) Issue of equity - - (3,650) - - Issue/repay debt 200 729 (902) - - Dividends paid (15,596) (20,830) (14,878) (14,878) (14,878) Other finance.cf 371 246 (244) (58) (58) C.F - Financing (15,026) (19,855) (19,674) (14,936) (14,936) Chg. in cash 250 (78) (7,242) (870) 1,800 Closing cash 47,269 38,313 31,071 30,201 32,001 Balance Sheet Cash 47,269 38,313 31,071 30,201 32,001 Accounts Receivable 8,522 11,464 10,188 11,045 11,924 Inventories 6,184 7,595 7,530 7,883 8,303 Other Cur. Assets 14,055 13,193 13,510 13,852 14,292 Investments 2,813 2,902 3,675 3,675 3,675 Gross Fixed Assets 46,863 50,793 57,312 64,312 71,312 Net Fixed Assets 18,170 20,736 24,525 28,453 32,027 CWIP 3,105 3,519 4,000 3,000 2,000 Def. Tax (Net) 1,960 2,045 2,045 2,045 2,045 Other Assets 8,465 10,453 10,453 10,453 10,453 Total Assets 110,541 110,220 106,996 110,606 116,720 Current Liabilities 29,203 30,518 32,075 33,702 35,427 Provisions - - - - - Debt Funds 408 1,199 297 297 297 Other Liabilities 40,511 44,500 48,712 53,372 58,598 Equity Capital 6,316 6,316 6,207 6,207 6,207 Reserves and Surplus 34,037 27,581 19,600 16,922 16,085 Shareholder s Fund 40,353 33,898 25,808 23,129 22,292 Minority Interest 66 105 105 105 105 Total Liabilities 110,541 110,220 106,996 110,606 116,720 BVPS (Rs.) 63.9 53.7 41.6 37.3 35.9 Ratios Y.E March FY15 FY16 FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 23.4 23.5 17.9 20.1 21.2 EBIT margin (%) 20.3 20.3 14.4 16.5 17.6 Net profit mgn.(%) 18.5 18.2 13.5 14.2 14.9 ROE (%) 33.2 38.3 35.0 49.9 61.8 ROCE (%) 51.7 56.7 51.5 73.4 90.9 W.C & Liquidity Receivables (days) 32.6 38.7 38.0 37.2 36.5 Inventory (days) 46.5 55.3 50.6 49.4 48.0 Payables (days) 5.9 6.1 6.2 6.2 6.2 Current ratio (x) 2.6 2.3 1.9 1.9 1.9 Quick ratio (x) 2.4 2.1 1.7 1.6 1.6 Turnover &Levg. Gross asset T.O (x) 1.6 1.5 1.4 1.4 1.4 Total asset T.O (x) 0.7 0.7 0.7 0.8 0.8 Int. covge. ratio (x) 2,051.3 767.1 45.7 243.0 284.7 Adj. debt/equity (x) 1.9 2.0 2.0 1.8 1.7 Valuation ratios EV/Sales (x) 2.0 2.0 2.1 1.9 1.7 EV/EBITDA (x) 8.2 8.3 11.2 9.1 7.7 P/E (x) 13.8 13.3 17.8 15.3 13.3 P/BV (x) 4.7 5.6 7.2 8.1 8.4
Recommendation Summary (last 3 years) Dates Rating Target 600 29 May 2012 REDUCE 296 14 August 2012 REDUCE 292 550 25 March 2014 BUY 332 500 14 July 2015 BUY 510 450 18 September 2015 BUY 470 20 January 2016 BUY 415 400 10 January 2017 HOLD 323 350 300 250 200 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source: Bloomberg, Geojit BNP Paribas Research Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit BNP Paribas Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit BNP Paribas's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Abhishek Kumar Das, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
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