We believe Coal India will not be able to offset its steep 1H volume shortfall in 2HFY12. Any
significant diversion of e-auction volumes to the power sector at notified prices would likely
have a significant impact on its earnings. We cut our FY12/13 EBITDA forecasts 17% each
and maintain a Sell rating.
Volume losses unlikely to be offset in 2H; we cut our volume forecasts 6% for FY12/13
Production volumes in 1HFY12 totalled 176Mt (down 5% yoy and versus the company’s
target of 196Mt). While 1Q production (at 96Mt) was flat yoy, 2Q production (at 80Mt) was
11% lower yoy due to excessive rain in key mining areas. We expect Coal India to
significantly miss its FY12 target of 452Mt. Although we believe volumes should recover
strongly in 2H, we do not believe it will be enough the offset a weak 1H. Railway rake
availability would be key as volumes ramp up, and volumes could further play spoilsport. We
cut our FY12/13 production volume forecasts 6% to 421Mt/438Mt, respectively.
Diversion of e-action coal to the power sector could hurt realisations
Despite the company’s power capacity having risen to 18-20GW since March 2009, Coal India,
with its production growth constrained, has not been able to sign new fuel supply agreements
(FSAs) with power utilities. With new capacities facing a serious shortage of coal, the Coal
Ministry has asked Coal India to divert 4Mt of e-auction volumes to be sold in October to the
power sector. With e-auction realisations at an 80-90% premium to FSAs, any significant
diversion of e-auction volumes at notified prices would significantly hurt earnings. Although this
may well be a one-off occurrence, it indicates an environment in which further increases in eauction
volumes is unlikely. We reduce our realisation estimates 2% each for FY12/13 to
Rs1,371/1,423/t, respectively.
We cut our FY12/13 EBITDA forecasts 17% each and maintain a Sell rating
With lower volumes and realisations, we cut our FY12/13 EBITDA forecasts 17% each. Wage
revisions for non-executives (85% of the workforce) and bonus payments are pending, with
negotiations under way. We model 23%/8% increases in employee expenses for FY12/13,
respectively. We note that the Mines and Mineral Development Regulation bill in its current form
could have a 15% impact on our FY13 earnings forecast. Our new DCF-based TP is Rs285. Sell
significant diversion of e-auction volumes to the power sector at notified prices would likely
have a significant impact on its earnings. We cut our FY12/13 EBITDA forecasts 17% each
and maintain a Sell rating.
Volume losses unlikely to be offset in 2H; we cut our volume forecasts 6% for FY12/13
Production volumes in 1HFY12 totalled 176Mt (down 5% yoy and versus the company’s
target of 196Mt). While 1Q production (at 96Mt) was flat yoy, 2Q production (at 80Mt) was
11% lower yoy due to excessive rain in key mining areas. We expect Coal India to
significantly miss its FY12 target of 452Mt. Although we believe volumes should recover
strongly in 2H, we do not believe it will be enough the offset a weak 1H. Railway rake
availability would be key as volumes ramp up, and volumes could further play spoilsport. We
cut our FY12/13 production volume forecasts 6% to 421Mt/438Mt, respectively.
Diversion of e-action coal to the power sector could hurt realisations
Despite the company’s power capacity having risen to 18-20GW since March 2009, Coal India,
with its production growth constrained, has not been able to sign new fuel supply agreements
(FSAs) with power utilities. With new capacities facing a serious shortage of coal, the Coal
Ministry has asked Coal India to divert 4Mt of e-auction volumes to be sold in October to the
power sector. With e-auction realisations at an 80-90% premium to FSAs, any significant
diversion of e-auction volumes at notified prices would significantly hurt earnings. Although this
may well be a one-off occurrence, it indicates an environment in which further increases in eauction
volumes is unlikely. We reduce our realisation estimates 2% each for FY12/13 to
Rs1,371/1,423/t, respectively.
We cut our FY12/13 EBITDA forecasts 17% each and maintain a Sell rating
With lower volumes and realisations, we cut our FY12/13 EBITDA forecasts 17% each. Wage
revisions for non-executives (85% of the workforce) and bonus payments are pending, with
negotiations under way. We model 23%/8% increases in employee expenses for FY12/13,
respectively. We note that the Mines and Mineral Development Regulation bill in its current form
could have a 15% impact on our FY13 earnings forecast. Our new DCF-based TP is Rs285. Sell
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