Coal India rating – Buy: A good final quarter for the company

Coal India (CIL) has reported higher-than-estimated PAT in Q4FY21, buoyed by higher volumes, improved q-o-q realisation and lower taxes. At Rs 45.9 bn, PAT was lower by only 0.8% y-o-y, despite higher contractual expense and lower other income due to decline in cash balance and lower rates. Revenue was 3.1% lower y-o-y at Rs 267 bn as although average realisation improved 5.4% q-o-q, it was still 4.9% lower y-o-y at Rs 1,484/te. CIL announced Rs 3.5 as the final dividend, taking FY21 payout to Rs 16/sh (10% yield at CMP). Aided by strong coal PLFs, increasing power demand and opening up of export opportunities, e-auction premiums are expected to continue improving. We remain positive for a significantly better FY22. Maintain Buy.

Q4FY21 result – Key takeaways
Offtake was at 165mnte, up 0.6% y-o-y. Production was 157mnte, down 4.8% y-o-y. PAT was above estimates mainly due to higher overall volumes, improved q-o-q e-auction, FSA realisations and lower taxes.CIL continued to control employee costs, the largest cost component (55% of opex). Revenue in Q4 came in at Rs 267 bn, supported by higher offtake but affected by decline in average realisation by 4.9% y-o-y to Rs 1,484/tn.

Ebitda at Rs 63.8bn was better than estimates due to lower OBR adjustment (-43% y-o-y). FSA realisation (Rs 1,392/ mnte) was lower due to higher sale of low grade coal. E-auction premiums increased by 20% q-o-q to Rs 1,752/mnte. Receivables in Jan’21-end were Rs 216 bn vs Rs 212 bn at Dec’20-end.

Good recovery in H2FY21: CIL’s FY21 revenue/Ebitda/PAT improved significantly in H2FY21, but was still lower by 6.3%/15.3%/23.9% y-o-y at Rs 900/186/127 bn, respectively, due to the severity of H1FY21 earnings. Production/offtake was lower by only 1%/1.3% y-o-y at 596mt/574mt. CIL’s e-auction volumes increased 44% y-o-y at 94.4mnte. Receivables declined to Rs 196 bn from the highs of Rs 238 bn in Oct’20-end.

Realisations continue to improve: CIL’s e-auction realisation has improved significantly since declining to as low as Rs 1,437/te during Q2FY21 to Rs 1,752/te in Q4FY21. E-auction volumes also increased by 30% during this period to 29mnte. We expect both e-auction volumes and realisations to continue improving and realisations reaching pre-Covid levels in the next few quarters.

Final dividend of Rs 3.5 takes FY21 payout to Rs 16/sh: CIL announced a final dividend of Rs 3.5/sh, taking the total dividend for FY21 to Rs 16/sh, which translates into a payout of 78% on FY21 EPS of Rs 20.6. Going forward, CIL’s dividend payout stability will continue and payouts shall be 2-3 times every fiscal.
We maintain our Buy rating and DCF-based TP of Rs 234 for Coal India, with offtake estimates at 630mnte/ 660mnte for FY22E/FY23E, respectively. The stock is currently trading at 5.5x P/E and 3x EV/Ebitda on FY23E basis with 39% RoE.