Market

Coal India rating – Buy: A much improved earnings performance

Moderation in worker price (-5% q-o-q), in addition to contractual bills have been compensated by enhance in consumption of shops (+14% q-o-q).

CIL reported A much improved earnings performance in Q2FY21 aided by (i) 9.4% y-o-y enhance in gross sales volumes; (ii) reversal of OBR provision of Rs 5.7 bn; and (iii) a stunning 44% y/y enhance in e-public sale volumes regardless of weak public sale costs (-29% y/y ). Improvement in e-public sale premiums have been measured since Q2FY21, although the amount trajectory will possible look higher resulting from a beneficial base and enhancing demand. Maintain Buy; revised FV Rs 180 (from Rs 195).

Lower e-public sale realisation dampened earnings
CIL reported revenues of Rs 195 bn (+3% y-o-y, +15% q-o-q), Ebitda of Rs 23 bn (+4% y-o-y, +47% q-o-q) and PAT of Rs 29.5 bn (-16% y-o-y, +42% q-o-q) in opposition to estimates of Rs 191.8 bn, Rs 13.5 bn and Rs 21.5 bn, respectively.

Higher-than-estimated Ebitda was largely on account of (i) reversal of overburden provision to the extent of Rs 5.7 bn, in opposition to a provision of Rs 5.8 bn factored in by us; and (ii) higher-than-anticipated realisations resulting from 41% q-o-q enhance in e-public sale volumes at 22.4 mn tons, offset by 10% q-o-q decline in e-public sale realisations at Rs 1,437/ton. We be aware {that a} reversal of overburden provision implies considerably larger overburden elimination relative to coal manufacturing resulting in a seasonally deteriorating strip ratio.

Moderation in worker price (-5% q-o-q), in addition to contractual bills have been compensated by enhance in consumption of shops (+14% q-o-q). Higher efficient tax-rate of 27% led to tax bills rising 47% y-o-y to Rs 11 bn leading to PAT of Rs 29.5 bn in Q2FY21.

We spotlight Coal India continues to wrestle on account of piling receivables which have reached Rs 212 bn as of September 2020 from Rs 144 bn as of March 2020. Cash move from operations remained unfavorable for H1FY21 at `36 bn at the same time as the corporate incurred capital expenditure of Rs 44 bn in H1FY21.

Operationally, manufacturing at 115 mn tons (+10.6% y-o-y) and gross sales at 134 mn tons (+9.4% y-o-y) had beforehand been reported, and look optically sturdy on account of beneficial base impact as coal demand in Q2FY20 was affected by decrease demand in addition to prolonged monsoons.

Stay constructive, with revised FV of Rs 180
CIL stays attractively valued at 5X P/E and 4X EV/Ebitda on adjusted earnings for FY2022e. We have revised our earnings for FY21/22e downwards by 11% and three% to consider continued weak spot in e-public sale costs in FY2021e at Rs 1,562/ton (from Rs 1,913/ton previsously) in addition to revision in uncooked coal costs in FY2022e. Maintain Buy with revised FV of Rs 180/share (from Rs 195/share) based mostly on March 2022e earnings.

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