PremiumCoal India's performance for the June quarter came in line with expectations, being helped by the rise in power demand. The company saw its sales volume for supplies under the fuel supply agreement (FSA), rise 25% year-on-year to 127.5 million tonnes. It supplies majority of its produce to the power sector.
With good demand, FSA realizations were also up 3% year-on-year at ₹1,394 per tonne. Rising e-auction volumes, which were up 90% year-on-year to 30.2 MT, accrued further benefits and cushioned the impact of sequential decline in FSA volumes from 139.2 MT. The strong demand pulling up e-auction volumes and e-auction realization came at ₹1,569 per tonne.
Revenue was up 37% y-o-y and 6% ahead of the estimate of analysts at Motilal Oswal Financial Services Ltd. They said that the marginal beat on our estimates was on account of a better e-auction mix in volumes.
Adjusted Ebitda (ex-OBR) was up 64% year-on-year, in line with estimates. The year-on-year jump in Ebitda comes on the back of volume growth, led by a recovery in power demand said MOFSL.
The sequential decline in Ebitda and margins was attributed to one-time provisioning of employee expenses (post-retirement and medical expenses). Overall, the performance remains marginally better than expected and the stock has gained more than 1% since the results.
Moving forward, the rise in thermal power demand, higher e-auction volumes, and realizations with rising international coal prices bode well. Rising international coal prices can help import substitution and lead to better e-auction realizations.
The e-auction realizations in the June quarter were on supplies booked during earlier quarters that fetched about a 10% premium on notified prices. The e-auctions are fetching about 30% premium to notified prices and that should help the company report better performance.
The company and analysts are expecting some rise in FSA realizations and if that happens can help drive earnings further.
The company is targeting 670 MT production from 596MT clocked in FY21. However, looking at the impact of the lockdowns, it may achieve 630-640MT production in FY22 and 705MT sales in FY22.
Improved performance coupled with a good dividend yield keeps analysts positive on the stock. “We expect the profitability of Coal to increase in FY22, with expected price hikes under FSA in Q3FY22," said analysts at Centrum Broking Ltd. This would offset any unforeseen impact due to wage revision on profitability, they added.
The valuations too are supportive. At 3x FY22E EV/EBITDA and 5.6x FY22 Price/Equity, Coal India remains attractively valued, said analysts at Motilal Oswal Financial Services Ltd.
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