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Coal India 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Coal India’s (CIL) 3QFY2012 top-line was below our expectations; however, bottom-line beat our estimates on account of lower-than-expected staff cost and higher-than-expected other income. We maintain our Neutral view on the stock.

Higher realization aids net sales growth: CIL’s 3QFY2012 net sales increased by 21.0% yoy to Rs.15,349cr (below our estimate of Rs.17,664cr) primarily due to higher average realization. Blended average realization on coal sales increased by 21.2% yoy to Rs.1,392/tonne; however, offtake stood flat yoy at 110mn tonnes. Production grew by 1.4% yoy to 115mn tonnes.

Other income boosts bottom-line growth: CIL’s EBITDA per tonne increasd by 40.9% yoy to Rs.442 in 3QFY2012 on account of higher realization. The company’s EBITDA increased by 40.6% yoy to Rs.4,875cr, representing an EBITDA margin of 31.8%. Other income grew by 48.4% yoy to Rs.1,856cr on account of higher cash balance and increased treasury yield. Hence, adjusted net income grew by 53.5% yoy to Rs.4,043cr (above our estimate of Rs.3,650cr).

Outlook and valuation: CIL’s 9MFY2012 production stood at 291mn tonnes; hence, it is unlikely to meet its FY2012 production target of 440mn tonnes in our view. Further, we believe that infrastructural bottlenecks (mainly availability of railway rakes) are likely to result in only 2.5% and 4.9% yoy growth in sales volumes during FY2012 and FY2013, respectively. Moreover, higher staff costs are expected to hit CIL’s operating margins during FY2013. Hence, we maintain Neutral rating on the stock.