Coal India rating: Buy — Muted power demand hit quarter results

A JC Bamford Excavators Ltd. (JCB) front loader loads coal onto a freight wagon at the Tori Siding on the Tori-Shivpur rail line, operated by Indian Railways and funded by Coal India Ltd., in Chandwa, Jharkhand, India, (Image: Bloomberg)

Coal India’s (COAL’s) Q1FY21 results highlight the impact of lower volumes/ e-auction realisations amid subdued thermal power demand. Adj. Ebitda (ex-OBR) was down 63% y-o-y. Muted power demand has impacted off-take and e-auction realisations. However, we expect Coal India to tide over the situation given its large cash position (net cash: ~Rs 230 bn). Maintain Buy with TP of Rs 190/share based on 3.5x Sep’21 EV/Ebitda.

Ebitda declines 63% y-o-y on lower volumes and e-auction realisations

Q1FY21 Adj. Ebitda (ex-OBR) was down 63% y-o-y to Rs 28 bn (in-line) on account of lower off-take/e-auction realisations. While FSA realisation at Rs 1,359/t was below our est. of Rs 1,400/t, it was offset by higher mix of e-auction volumes at 15.9mt (v/s est. 13.1mt). Revenue declined 26% y-o-y to ~ Rs 185 bn (v/s est. Rs 194 bn). Overall off-take was down 22% y-o-y to 120.4mt. Production was down 12% y-o-y to 121mt. Cash cost (ex-OBR) rose 15% y-o-y to Rs 1,180/t.

FSA volumes declined 22% y-o-y to 102.2mt (v/s est. 103.5mt); FSA realisation was down 1% y-o-y to Rs 1,359/t.
E-auction volumes declined 17% y-o-y to 15.9mt; E-auction realisation was down 26% y-o-y to Rs 1,598/t (v/s est. Rs 1,600/t). The company reported write-backs of Rs 2.5 bn on OBR amidst strong focus and higher stripping ratio. This led to a beat on our reported PAT numbers. Overall, PAT was down 55% y-o-y to Rs 20.8 bn (v/s est. Rs 13.4 bn).

Management commentary: Receivables situation slowly improving

COAL’s management has noted that the company’s receivables have increased to Rs 230 bn in Q1FY21 from Rs 178 bn at end-FY20. However, these decreased to Rs 210 bn at end-Aug’20. COAL expects the situation to normalise from Oct’20. COAL is focusing on import substitution and targeting ~100mt under the same. It is planning ~75mt of coal for the Non-Regulated Sector (NRS).

Valuations attractive; maintain Buy

Volumes and e-auction realisations have been under pressure on decline in power demand and significant stocks at both mines and power plants. However, power demand is showing signs of improvement and we expect volumes to recover in H2FY21. Furthermore, we expect Coal India to tide over the current situation given its large cash position. The stock trades attractively at ~1.6x FY22e EV/adj. Ebitda (v/s historical average of 7x), P/E of 5x (v/s average of ~13x) and offers a dividend yield of ~10%.