Accumulate Coal India; target of Rs 310: P Lilladher

Prabhudas Lilladher's report on Coal India (CIL)

Coal India (CIL) reported Q2FY14 earnings in line with our expectation. The key highlight of results were weaker‐than‐expected FSA realisations, attributed to seasonal and unusual factors like grade slippage and old inventory liquidation. We believe that fall in earnings on account of grade slippage (if it is sustainable) would be offset by price hike. We continue to maintain our 'Accumulate' rating on the stock with a target price of Rs 310 on the back of undemanding valuations and attractive dividend yield. Impacted by a surprise fall in FSA realisations, blended realisations fell 1.3 percent YoY/1.1 percent QoQ at Rs1416/t, contrary to our expectation of 2.7 percent YoY/3.0 percent QoQ rise in realisation at Rs1,474, while, volumes grew 7.3 percent YoY at 109m (PLe:109m) t. Management attributed 1.3 percent YoY/1.8 percent QoQ fall in FSA realisations (Rs1262 v/s PLe: Rs1340) to slippage in grade, liquidation of old inventory and increased share of low grade. Eauction realisations dropped 9.7 percent YoY (+3.8 percent QoQ) at Rs2,220 (PLe: Rs2,210)/t, while volumes rose 25.3 percent YoY at 12.9m (PLe: 12.8m) tonnes. Total cost/t rose 0.5 percent YoY at Rs1,159, below our expectation of Rs1,215, primarily on account of lower OBR adj cost. Cash cost (adjusted for OBR) stood marginally ahead of our expecation at Rs1,124 (PLe: Rs1,114) on higher stores and spares cost. Hence, EBITDA/t fell ~9 percent at Rs257 (PLe: Rs259), while EBITDA fell 2 percent at Rs27.9bn (PLe: Rs28.2bn). PAT stood ahead of our expecation at Rs30.6bn (PLe:Rs29.2bn) on account of lower-thanexpected tax rate (31.6 percent v/s PLe: 34 percent) and higher other income. Key highlights of con‐call: 1) Sold 11mt of 2-3 years old stock in Q2 2) Expects better grade in Q3 on the back of fresh coal and end of monsoons 3) 55mt out of total offtake target of 615m in FY17 at risk due to poor progress of three crucial railway lines 4) Targeting 530mt of offtake in FY15, tough to achieve due to railway constraints 5) Would supply 377mt to power utilities in FY14 against 347mt in FY13 6) E-auction volume would be 12 percent of total volumes in FY14. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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