CIL: Maintain ‘buy’ with revised FV of Rs 185/share

Weak realisations. Coal India (CIL) reported weak performance as realisation for raw coal (contributing 80% by volumes) declined to Coal India1,354/tonne (-4% yoy) leading to flat revenues of Rs 217 billion despite 8.7% y-o-y growth in overall dispatches in Q3FY21. Strong e-auction volumes (+177% yoy) despite weak premiums (25% in 3QFY21) continued to salvage earnings over the past few quarters. Sustained improvement in dispatch volumes continues to remain the key earnings driver for CIL. Maintain ‘buy’ with revised fair value (FV) of Rs 185/share (from Rs 180/share earlier).

CIL reported revenues of Rs 217 billion (+1% yoy, +11% qoq), ebitda of Rs 32 billion (-5% yoy, +38% qoq) and PAT of Rs 30.8 billion (-21% yoy, +4% qoq) against our estimates of Rs 223.8 billion, Rs 32.5 billion and Rs 36 billion, respectively. The revenue miss was largely on account of lower blended realisations of Rs 1,411/tonne (-7.4% yoy, -3% qoq) due to continued weakness in e-auction realsations at Rs 1,466/tonne (-44% yoy,+2% qoq) though the same was off-set by substantially higher e-auction volumes of 27 million tonne (+177% yoy, +22% qoq) thereby cushioning the impact on revenues.

Costs were largely contained barring social overhead expenses, while a lower overburden provision made good the weakness in revenue performance to deliver an in-line ebitda of Rs 32 billion. Higher effective tax-rate of 35% led to tax expenses increasing leading to a miss in PAT estimates. Operationally, production at 157 mn tonne (+6.3% yoy) and sales at 154 mn tonne (+8.7% yoy) had previously been reported, and look optically strong on account of favorable base effect as coal demand in 3QFY20 was affected by lower demand. We highlight that CIL continues to struggle to recover piling receivables, which have reached Rs 215 billion as of December 2020 from Rs 144 billion as of March 2020.