Expect a solid Q4: The volume trajectory, as inferred from what CIL has clocked in Jan’22 (6.5%/13.6% y-o-ygrowth in production/offtake), strengthens our view.
Coal India (CIL) reported good numbers for Q3FY22 with 20% y-o-y increase in revenues at Rs 284 bn, supported by 10.8% y-o-y increase in offtake at 174mnte and 6.3% y-o-y increase in average realisations at Rs 1,497/te. Ebitda at Rs 68.2 bn was 32.2% higher y-o-y, while Ebitda/te was a healthy Rs 393. Reported PAT was up 47.4% y-o-y to Rs 45.6 bn, taking the 9MFY22 EPS to Rs 17.3 and on course to reach our estimate of Rs 25.7 for FY22e. The good show came despite severe cost pressures on several fronts, which offset the increase in volumes and realisations, and which we believe is a compelling reason for an imminent price hike.
On the back of increased demand for domestic coal due to high thermal power PLFs and elevated international coal prices resulting in high e-auction volumes and premiums, we believe CIL will better its growth in Q4FY22. Company announced a second interim dividend of Rs 5/sh taking total dividend to Rs 14/sh for FY22-TD (81% payout). We believe a final dividend of at least Rs 4/sh will also be distributed. Maintain Buy.
Q3FY22 result – key takeaways.
Production was 6.5% higher at 164mnte. Reported PAT was up 47.4% y-o-y, mainly impacted by: (i) 10.8% y-o-y increase in offtake and 6.3% y-o-y increase in average realisations; (ii) higher diesel prices and explosive costs resulted in 19.4% y-o-y increase in contractual expense; (iii) 6.2% y-o-y increase in staff costs; (iv) depreciation increased 13.7% y-o-y due to higher capex in FY21/9MFY22; (v) other income was flat y-o-y due to lower cash balance and interest rates. FSA/e-auction volumes were +17.4%/-4.8% y-o-y at 144.6mnte/ 26mnte, as focus was on supply to power sector. FSA realisations at Rs 1,370/te were 1.1% higher y-o-y, while e-auction realisations were up 32.8% y-o-y at Rs 1,947/te. Price hike imminent: As mgmt has said, CIL has to undertake price hikes to counter cost increases on all fronts, although quantum and timing of hike is being evaluated. While the standardisation of rapid loading/evacuation charges at Rs 60/te since Aug’21 and rise in realisation have somewhat helped maintain profits, price hike will be the only sustainable way forward.
Expect a solid Q4: The volume trajectory, as inferred from what CIL has clocked in Jan’22 (6.5%/13.6% y-o-ygrowth in production/offtake), strengthens our view.
Valuation: We maintain our Buy rating and our DCF-based TP of Rs 234. CIL is currently trading at 5x P/E and 2.5x EV/Ebitda on FY24e basis with 38.4% RoE. We expect dividend payout to be high, leading to 13% yield at current prices, as incremental capex in diversified segments is expected to be funded primarily by debt.
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