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Recommendations India

Coal India 3QFY2014 performance highlights and results update

February 14, 2014, Friday, 17:52 GMT | 12:52 EST | 22:22 IST | 00:52 SGT
Contributed by Angel Broking

Coal India’s (CIL) 3QFY2014 top-line was below our estimate; however, its bottom-line came in slightly ahead of our estimates. We recommend an Accumulate rating on the stock.

E-Auction realizations decline 20.7% yoy: The company’s net sales decreased by 2.3% yoy to Rs.16,928cr (below our estimate of Rs.17,336cr) due to decrease in sales volumes (down 3.0% yoy to 117mn tonne). However, blended realizations were flat yoy to Rs.1,444/tonne. Although CIL had taken a price hike for its FSA coal, its e-auction realizations declined 20.7% yoy to Rs.2,332/tonne.

Lower e-auction realizations and higher staff costs dent EBITDA: CIL’s EBITDA decreased by 11.2% yoy to Rs.4,793cr, mainly due to lower e-auction realizations and higher staff costs (up 10.7% yoy to Rs.6,980cr). Other income decreased by 7.6% yoy to Rs.2,182cr and the tax rate also increased to 33.1% in 3QFY2014 compared to 29.5% in 3QFY2013, which resulted in adjusted net profit decreasing by 12.0% yoy to Rs.3,883cr (above our estimate of Rs.3,724cr).

Outlook and valuation: CIL has reported only 2.0% yoy growth in volumes during 9MFY2014. Also, its recent profitability has declined due to lower eauction realizations and higher costs. Nevertheless, we expect volume growth to pick up during FY2015. Moreover, we believe valuations are attractive at 5.7x and 4.7x FY2014 and FY2015 EV/EBITDA, respectively. Hence, we recommend Accumulate rating on the stock, valuing the stock at 5.5x FY2015 EV/EBITDA to derive a target price of Rs.290.