For 2QFY2016, Coal India (CIL) reported a strong 8% yoy increase in revenue to
Rs16,958cr, in line with our estimate of Rs16,833cr. Off-take volumes were
marginally ahead of our expectations at 121.8MT (our estimate was of 119.1MT).
Off-take was higher in the FSA segment with e-auction and washeries volumes in
line with expectations. FSA realizations were in line with expectations at Rs1,294/T.
However, e-auction realizations came in much lower than expected at Rs1,788.
Blended realization/tonne came in lower than our expectation at Rs1,392 (1.5%
lower than our estimate of Rs1,414), led by the sharply lower e-auction realisation.
Blended realisation declined 2% yoy, while off-take increased 10.2% yoy, resulting
in an 8.2% increase in net sales. The EBITDA, at Rs3,008cr, came in 3.2% lower
than our estimate, resulting in a 140bp improvement in EBITDA margin to 17.2%,
marginally lower than our estimate of 17.9%. Net profit at Rs2,544cr was slightly
ahead of our estimate of Rs2,445cr.
Outlook and valuation
We reduce our consolidated FY2016 and FY2017 EPS estimates by 12% and 9%,
respectively, in view of the lower than expected realizations and increased
operating expenses. We expect CILs production to increase by 7.1% to 530MT in
FY2016 (538MT earlier) and 572MT in FY2017 (575 MT earlier). We expect eauction
realization to remain under pressure led by weakness in global
commodity prices and increased availability of coal in FY2016. We value Coal
India at 8x FY2017E Adj. EBITDA to arrive at a revised target price of Rs380 (Rs400
earlier) and retain our Accumulate rating on the stock.
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