March 28, 2014 Rating Matrix Coal India (COALIN) Rating...
Transcript of March 28, 2014 Rating Matrix Coal India (COALIN) Rating...
March 28, 2014
ICICI Securities Ltd | Retail Equity Research
Initiating Coverage
Steady volume growth; patience holds key… Coal India (CIL), a Maharatna public sector enterprise, is engaged in mining coal, the key material used in generating thermal power. CIL is the largest coal producing company in the world with huge coal reserves (reserves/production at ~40 years). The company also enjoys a dominant status in the domestic market wherein it contributes ~81% of India’s total coal output and on the demand side meets ~65% of domestic consumption requirements. Furthermore, by virtue of being a majority open cast miner (~90%), CIL also realises healthy operating margins, thereby enjoying consistent cash flows. FY13 was inspiring wherein it witnessed healthy growth in production (3.8% YoY) and sales (7.4% YoY). However, FY14 has been challenging and output has been hit by strikes, cyclone, etc. Nevertheless, CY14 has started on a positive note for CIL wherein policy related changes (relaxation of rules to allow up to 50% expansion in coal projects with annual production up to 8 MTPA) and granting of approvals for 23 projects reflected the strong thrust the government has to increase the domestic coal supply. We believe a relatively swift clearance process and introduction of the mine-developer-operator approach will aid CIL to enhance its output levels. We have modelled coal sales volume growth at 3.7% CAGR for FY13-16E. We are initiating coverage on CIL with a BUY rating and a target price of | 320. One-time capacity expansion; gives thrust to our belief!! In December 2012, the Environment Ministry (MoEF) issued guidelines to grant environmental clearances to existing mine projects for one-time capacity expansion of 25% within the same mine lease area, which had already had a public hearing subject to conditions. Furthermore, on the back of persuasion by the Coal Ministry, in January 2014 the MoEF further relaxed the capacity expansion norms for small mines with capacity up to 8 MTPA. As per the new ruling, mines with capacity up to 8 MTPA can go for one-time capacity expansion of 50% or 1 MT, whichever is higher without holding public hearings. Earlier 25% one-time capacity expansion rule remains the same for mines with capacity greater than 8 MTPA. Faith to last in midst of blackest storms!! CIL has a strong balance sheet with robust cash flows and a healthy liquidity position. In FY13-16E, we expect the topline to grow at a CAGR of 4.1% with EBITDA & PAT de-growing 3.9% & 3.2%, respectively, on the back of declining e-auction realisations and other income yield. We have valued the stock at 6.5x FY16E adjusted EV/EBITDA (adjusted for overburden removal), thereby valuing the company at its international peers’ average FY16E EV/EBITDA of 6.5x & arrived at a target price of | 320. A healthy dividend payout and impressive dividend yield (~4.3% on a normalised basis) reiterate our positive stance on the company. Exhibit 1: Key financials
(Year-end March) FY12 FY13 FY14E FY15E FY16ENet Sales (| crore) 62,415.4 68,302.7 68,007.8 72,695.4 77,087.6 EBITDA (| crore) 15,667.8 18,083.6 14,412.9 14,959.4 16,053.2 Net Profit (| crore) 14,788.2 17,356.4 14,061.1 14,551.3 15,736.4 EPS (|) 23.3 27.5 22.3 23.0 24.9 P/E (x) 12.3 10.4 12.8 12.4 11.5 P/B (x) 4.5 3.7 4.4 3.9 3.4 EV/EBITDA (x) 7.9 6.7 8.7 7.8 6.7 RoCE (%) 32.6 32.3 29.4 27.0 25.4 RoE (%) 36.6 35.8 34.2 31.1 29.3
Source: Company, ICICIdirect.com Research
Coal India (COALIN) | 286
Rating Matrix Rating : Buy
Target : | 320
Target Period : 12-18 months
Potential Upside : 12%
Key Financials (YoY Growth) FY13 FY14E FY15E FY16ENet Sales 9.4 (0.4) 6.9 6.0 EBITDA 15.4 (20.3) 3.8 7.3 Net Profit 17.4 (19.0) 3.5 8.1 EPS (|) 17.4 (19.0) 3.5 8.1
Current & target multiple FY13 FY14E FY15E FY16E
P/E 10.4 12.8 12.4 11.5 Target P/E 11.7 14.4 13.9 12.9 EV / EBITDA 6.7 8.7 7.8 6.7 P/BV 3.7 4.4 3.9 3.4 RoNW 35.8 34.2 31.1 29.3 RoCE 32.3 29.4 27.0 25.4
Stock Data Bloomberg/Reuters Code COAL IN EQUITY /COAL.NSSensex 22,155.0 Average volumes 296594Market Cap (| crore) 180,648.0
52 week H/L 331 / 238
Equity Capital (| crore) 6,316.4 Face Value | 10Promoter's Stake (%) 90.0 FII Holding (%) 5.5 DII Holding (%) 2.4
Price movement
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Price (R.H.S) Nifty (L.H.S)
Comparative Matrix Return % 1M 3M 6M 12MCoal India 11.2 (3.3) (7.2) (8.0) NMDC 2.3 (2.3) 7.8 1.0 GMDC 14.9 12.5 36.1 (26.2)
Analyst’s name Dewang Sanghavi [email protected]
Shashank Kanodia [email protected]
ICICI Securities Ltd | Retail Equity Research Page 2
Company background Coal India (CIL), the mining major, was incorporated in November 1975. CIL is the largest coal producer in the world with coal production of 452.2 MT in FY13. The company supplies coal to sectors like power, steel, cement, defence, fertiliser, etc. As of March 31, 2013, CIL operated 462 mines in 81 mining areas across eight states in India, including 169 open cast mines, 270 underground mines and 23 mixed mines (which include both open cast as well as underground mines).
Key highlights:-
CIL has seven wholly-owned coal producing subsidiaries and one mine planning and consultancy company
The company also owns a mining company in Mozambique called Coal India Africana Limitada
CIL was granted the prestigious Maharatna status in April 2011 by the Government of India
The company produces ~81% of India’s total coal production and has a domestic market share of ~65%
Exhibit 2: Product Category
Non coking coal (thermal coal)
It is the main product of the company & is mainly used as thermal grade coal for power generation. It is produced at varied gross calorific value ranging from 2200 kcal/kg to 7000 kcal/kg
Coking coal
It acts as a reducing & heating agent in steel manufacturing & is widely used in blast furnace – BoF route of steel making process. India currently imports close to 70% of its requirements of this type of coal
Semi coking coalIt is used to blend the expensive imported coke to optimise the heating rate & associated costs involved. It is produced in two grades depending on the ash & moisture content
Washed & beneficiated coal
These coals have undergone the process of coal washing or coal beneficiation, resulting in value addition by way of reduction in ash percentage
Source: Company, ICICIdirect.com Research
Exhibit 3: Coal India timeline… s
Source: Company, ICICIdirect.com Research
Shareholding pattern (%) – Q3FY14
Shareholder Holding (%)
Promoters 90.0
Institutional investors 7.9
General public 2.1
FII & DII holding trend (%)
5.6 5.5 5.6 5.4 5.4 5.5 5.5
2.42.32.32.01.71.81.7
0123456
Q1FY
13
Q2FY
13
Q3FY
13
Q4FY
13
Q1FY
14
Q2FY
14
Q3FY
14
%
FII DII
First commercial pricing policy formulated & overall
production crossed 100 million tonne
Incorporated in 1973 as Coal Mines Authority Ltd;
later name changed to Coal India Ltd (CIL) in
1975
Production crossed 200 million tonne
Established subsidiary in Mozambique, went public in November 2010, inclusion in Sensex, awarded Maharatna
status
Production crossed 300 million tonne
1974-76
1980-81
1991-92
1995-96
2003-04
2006-09
2010-12
Debt restructuring & equity infusion by
Government of India, first bond issuance,
funds by World Bank
Award of Mini Ratna status by Dept of Public Enterprises, GoI,
debt reduction, award of Navratna status, production crosses 400 million tonne
ICICI Securities Ltd | Retail Equity Research Page 3
Exhibit 4: Overview of Coal India
Eastern Coalfields(100%)
Western Coalfields (100%)
South Eastern Coalfields (100%)
Bharat Coking Coal Limited (100%)
Northern Coalfields (100%)
Coal India Africa Limited (100%)
Mahanadi Coalfields (100%)
Central Coalfields Limited (100%)
MSJS Coal (60%)
MNH Shakti Ltd (70%)
Coal India
Central Mine Planning & Design Institute (100%)
Source: Company, ICICIdirect.com Research
Listing In November 2010, Coal India got listed on the domestic stock exchanges via an initial public offering (IPO). The company witnessed a dream listing wherein the offer price was | 245 while it got listed at | 291. In terms of size, it was one of the largest IPOs in the history of the domestic capital markets wherein | 15,200 crore was garnered by the government by divesting its 10% stake and was oversubscribed 15.2 times.
Exhibit 5: Glossary of important relevant terms
Term MeaningResource A coal resource must have the potential for eventual economic viability
ReserveA coal reserve is the economically mineable part of measured and indicated coal resources
Proved geological resource
It represents the resource base with the highest confidence. The material depicted inthe area is within a radius of 200 metre of boreholes taken up for exploration. Provedgeological reserves can be found only on the completion of detailed exploration
Indicated geological resource
It represents material occurring beyond a radius of 200 metre but within a radius of 1000 metre around the boreholes taken up for exploration
Inferred Geological ResourceIt represents material occurring beyond a radius of 1000 metre but within a radius of2000 metre around boreholes taken up for exploration
Extractable Coal ReservesIt is used to indicate the portion of a resource for which extraction is established to be technically & economically feasible through mining studies
Gross Calorific Value (GCV)It takes into account heat trapped in ash content alongside the heat value of carbon content
Useful Heat Value (UHV) It takes into account only the actual heat value contained
Overburden removal (OBR)
OBR is the provision being made by CIL in its P&L statement to account for the probable vagaries that may be encountered while mining coal. It depends on the stripping ratio witnessed during mining wherein if the stripping ratio witnessed is less than the projected stripping ratio then the provision for overburden removal will increase. If the stripping ratio witnessed is more than the projected ratio then the provisions made are less
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 4
Production Production grew at a CAGR of 4.4% in FY04-13 while in FY13 it was at 452 MT, up 3.7% YoY. For 10MFY14 the coal production came in at 367 MT.
Exhibit 6: Production trend
306 324 343 361 379 404 431 431 436 452367
0
100
200
300
400
500
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
10M
FY14
milli
on to
nne
Source: Company, ICICIdirect.com Research
Exhibit 7: Production bifurcation of coal types
24 24 26 27 36 41 43 44 38
319 337 353 377 395 390 392 409329
343
361
379
404
431
431
436
452
367
0
100
200
300
400
500
FY20
06
FY20
07
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13
10M
FY14
in m
illion
tonn
e
Coking Coal Non Coking Coal Total Production
Source: Company, ICICIdirect.com Research
Coking coal constitutes 9.7% of its total production in FY13 that came in at 452.2 MT. In FY13, coking coal production stood at 43.7 MT. The main coking coal producing subsidiaries are BCCL and CCL. Exhibit 8: Production bifurcation – Open cast vs. underground
259 277 298 318 336 360 388 391 397 414337
47 47 46 43 44 44 43 40 38 38 30
0
100
200
300
400
500
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
10M
FY14
milli
on to
nne
Open cast Underground
Source: Company, ICICIdirect.com Research
The main coal producing mines are South Eastern Coalfields (SECL) (118.2 MT) and Mahanadi Coalfields (MCL) (107.9 MT), which constituted 27% and 24% of total production, respectively, in FY13. E (G9-G11) and F (G11-13) grade coal comprises the majority (66%) of coal supply from CIL. The average kcal/kg of coal supplied by CIL is ~3500-4000 kcal\kg
Exhibit 9: Subsidiary wise production (percentage share)
ECL7% BCCL
7%
CCL11%
NCL15%
WCL9%
SECL27%
MCL24%
Source: Company, ICICIdirect.com Research
Exhibit 10: Coal supply grade wise
Coking Coal, 9%
G (G13-14), 0%
F (G11-G13), 42%
E (G9-G11), 24%
D (G7-G9), 8%
C (G6-G7), 10%
B (G4-G5), 6%A (G1-G3), 1%
Source: Company, ICICIdirect.com Research
Underground production comprises ~8.4% of total production in
FY13 whereas open cast comprises ~91.6% of the total
production. In FY13, coal production from open cast mines
stood at 414 MT whereas coal production from underground
mines stood at 38 MT. South Eastern Coalfields, WCL and ECL
are subsidiaries that produce coal using underground mines
The company’s entire coking coal is not steel grade coking coal
that can be used by steel manufacturers. Instead, out of the
total 43.7 MT, only about ~8-9 MT is steel grade coking coal,
which can be used by steel manufacturers. From this, a majority is being offloaded by SAIL
CAGR 4.4% (FY04-13)
ICICI Securities Ltd | Retail Equity Research Page 5
Sales Sales grew at a CAGR of 4.8% in FY04-13 to 465 MT in FY13. For 10MFY14, the coal sales came in at 386 MT
Exhibit 11: CIL sales trend
304 322 334 351 375 401 416 425 433465
386
050
100150200250300350400450500
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
10M
FY14
milli
on to
nne
Source: Company, ICICIdirect.com Research
Exhibit 12: Sales bifurcation trend
234 249
257
262 28
0 297
299
304
312 34
5
12 12 10 10 10 9 9 10 8 8
58 61 67 79 85 96 108
111
113
112
050
100150200250300350400
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
in m
illion
tonn
e
Power Utilities Steel / hard coke others
FY13 steel & others category sales are our estimates Source: Company, ICICIdirect.com Research
The power sector comprises the major share of overall sales volumes with its share in FY13 at 74.2%. The others portion of sales consists of the e-auction sales and coal supplied to independent power plants (IPP). Routes through which coal is supplied:- Fuel supply agreements (FSA): It is the commitment towards uninterrupted supply of coal. FSA constitutes ~82-85% of the total coal supplied by volume. E-auctions: Production quantity, which is left after supplying coal through FSA, is sold through e-auctions. This fetches greater realisations for the company and is as per the directive of Ministry of Coal. E-auctions constitute ~10% of the total coal supplied by volume.
Exhibit 13: Sales break-up by volume (FY13, 465 MT)
FSA, 397.2MT, 85%
e-auction, 49.1MT, 11%
feed to washeries, 17.6MT, 4%
Source: Company, ICICIdirect.com Research
Exhibit 14: Sales break-up by value (FY13, | 68203 crore)
FSA, 51571 crore, 76%
Washed Coal & Products,
4229 crore, 6%
E-Auction Sales, 12503 crore, 18%
Source: Company, ICICIdirect.com Research
By volume, in FY13, FSA constituted 85.4% of the entire offtake
whereas e-auction comprised 10.6%. The rest is constituted by
washeries to the tune of ~3.8%
By value, in FY13, FSAs constituted 75.5% whereas e-auction
comprised 18.3%. The balance consists of washed products to
the tune of 6.2%
CAGR 4.8% (FY04-13)
ICICI Securities Ltd | Retail Equity Research Page 6
Investment Rationale Huge mineral resource base Coal India has a huge extractable reserve base (reserves of 18.2 billion tonne) and is well placed to cater to the rising domestic demand. Its extractable coal reserves can easily suffice for current production levels for the next 40 years (reserves: production at 40). Exhibit 15: Coal India reserves & resources (as on April 1, 2010) (million tonne)
Particulars
Proved Geological Resource
Indicated Geological Resource
Inferred Geological Resource
Total Geological Resource
Extractable Coal Reserves
Coalfields currently under productionKorba 3,896 1,605 51 5,552 2,670 Singrauli 3,270 212 - 3,482 1,891 Talcher 7,568 1,721 640 9,929 5,893 IB - Valley 3,242 161 - 3,403 2,119 Wardha Valley 2,249 614 58 2,921 795 Jharia 5,983 1,009 51 7,043 1,145 North Karanpura 4,458 35 - 4,493 2,072 Central India Coalfields 2,665 892 123 3,680 774 Raniganj 7,556 1,242 379 9,177 662 Rajmahal / Deogarh 1,378 382 579 2,339 546 East Bokaro 2,116 1,110 - 3,226 692 Wast Bokaro 1,516 236 10 1,762 462 Kamptee 817 121 - 938 214 Mand- Raigarh 1,957 114 - 2,071 659 Umrer Nand Bander 558 1 - 559 215 South Karanpura 1,550 196 7 1,753 308 Pench-Kanhan 693 199 44 936 148 Pathakhera 190 28 - 218 87 Makum 362 - - 362 239 Ramgarh 386 19 - 405 138 Giridih 18 - - 18 15 Coalfields currently not under productionDaltonganj 16 0 0 16 0Hutar 0 0 0 - 0Tatapani-Ramkola 97 387 0 484 0Dilli-Jeypore 4 14 0 18 10Total 52,545 10,298 1,942 64,785 21,754
Source: Company, ICICIdirect.com Research
The above mentioned resource & reserves figures are as per DHRP filed by the company at the time of listing in November 2010. However, the company in its latest presentation declared resources of 62.7 billion tonne (against 64.8 billion tonne declared earlier) and reserves of 18.2 billion tonne (against 21.8 billion tonne declared earlier) due to switch over to the globally accepted United Nations Framework Classifications (UNFC)
CIL has the largest reserve base among all its peer group companies in the world. Though the grade of coal mined by Coal India is of low calorific value, the same can very well be utilised by domestic power plants, thereby generating valuable thermal energy.
CIL has a huge resource base of ~64.8 billion tonne, with 52.5
billion tonne, 10.3 billion tonne and 1.9 billion tonne of proved,
indicated and inferred geological resources, respectively.
Exhibit 16: International Peers Reserves
S. No Company Base Country Reserves (million tonne)
1 Peabody Energy USA 9285
2 Arch Coal USA 5490
3 Adaro energy TBK pt Indonesia 1194
4 Bayan resources Indonesia 477
Coal India Ltd India 18200
Source: Company PPTs, ICICIdirect.com Research
Comparing its global peers CIL reserves at 18.2 billion tonne
are around twice the reserves of its largest peer Peabody Energy at 9.3 billion tonne
ICICI Securities Ltd | Retail Equity Research Page 7
Government support to aid production growth going forward
After a couple of years of stagnant production levels in the past, CIL has finally delivered a decent performance with FY13 coal production coming in at 452.2 MT, up 3.7% YoY. For the 11 months ended FY14 the company’s production growth has been sluggish at mere 2.8%. However, In order to boost coal volumes the government has eased the environmental clearance norms for expanding capacities of existing coal mines. This is likely to help state-run CIL boost output, going forward, and ease the crippling fuel scarcity in the power sector. Going forward, we expect coal production at the company to grow at a CAGR of 4.0% in FY13-16E to 509 MT in FY16E.
Relaxation in norms to aid Coal India to increase output The Environment Ministry issued guidelines in December 2012 to grant environmental clearances to existing mine projects, which had already had a public hearing, subject to conditions for one-time capacity expansion of 25% within the same mine lease area. The capacity expansion comes with a cap of mining 2 MTPA of coal if mined coal is transported through road and 5 MTPA of coal if it is transported through rail.
Further, the Ministry of Coal has taken up the case for smaller coal mining projects with the MoEF wherein it has stated that the cap on capacity expansion up to 25% for such projects, as per the current guidelines, was inadequate and will yield negligible increase in production.
Consequently, in January 2014, the government has allowed expansion up to 50% in existing projects without any public hearing, under the environmental appraisal process. This relaxation is for coal mining projects with annual production capacity of less than 8 MTPA. This rule will help CIL to enhance output swiftly and also check for a delay in project development. It has been decided to allow one-time capacity expansion up to 50% or incremental production of up to 1 MTPA, whichever is higher. The ministry has also further clarified that the relaxation will not apply for projects having annual production of more than 8 MTPA. They would be allowed to expand up to 25% of capacity without mandatory public hearing as decided in December 2012.
Sets up CCI to expedite the decision making process CIL has also received approval from MoEF for 23 projects after intervention by the Cabinet Committee on Investment (CCI). The government set up the CCI to expedite the decision making process for clearance of projects in the infrastructure sector.
As on December 2013, out of the 20 projects pending with MoEF for environment clearance (EC), 16 proposals have been granted EC. Of the pending four projects awaiting environment approval, three belong to Western Coalfield (WCL) and one to South Eastern Coal Field (SECL).
In addition, two of the five projects have been granted stage-II forest clearance (FC) while five of the 15 proposals have been granted stage-I FC. Of the other projects awaiting stage – II FC, two belong to Central Coalfield (CCL) and one to SECL. Two projects of CCL, four of SECL and four of Central Mine Planning & Design Institute (CMPDIL) are yet to receive stage-I FC.
Production trend
361 379 404 431 431 436 452367
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500
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FY08
FY09
FY10
FY11
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10M
FY14
milli
on to
nne
Source: Company, ICICIdirect.com Research
One time environmental norms waiver conditions
Source: MoEF, ICICIdirect.com Research
Existing mining capacity (coal mine)
<= 8 MTPA > 8 MTPA
Expansion permitted up to 50% of existing capacity or 1 MTPA; whichever is higher
Expansion permitted up to 25% of existing capacity
Maximum of 2 MTPA if coal is transported through road
Maximum of 5 MTPA if coal is transported through rail
ICICI Securities Ltd | Retail Equity Research Page 8
Introduction of mine-developer-operator approach Coal India is also planning to work through a mine-developer-operator (MDO) approach to step up production. Under this concept, the MDO will develop and operate the mine and be responsible for detailed designing, financing, procurement, construction, operations and maintenance of all infrastructures including coal washery, loading arrangements, etc. Further the MDO/participating company will facilitate possession of land and R&R activities, preparation and clearance of Environmental Impact Assessment (EIA), Environmental Management Plan (EMP) and forest clearance (FC). However, CIL will directly obtain approval of EMP and FC. The MDO, on the other hand, will be responsible for environment monitoring and management, reclamation and mine closure (progressive and final). All activities within the mine premises and till the loading of coal in rail wagons, according to agreed annual targets, will be the responsibility of the MDO. Within the MDO approach, the company plans to take up seven mines in the first phase and expand the horizon later, depending on results. We believe this MDO approach is likely to yield positive results over a medium to long term horizon. Exhibit 17: Subsidiary wise production targets (in MT)
Actual ProductionFY13 FY14E FY15E FY16E FY17E
ECL 33.9 34.5
BCCL 31.2 32.5
CCL 48.1 53.5
NCL 70 72.2
WCL 42.3 44
SECL 118.2 124.3
MCL 107.9 120
CMPDIL NA NA
CIL\NEC 0.6 1
Total 452.2 482 507 537
556
-
615
Production targetSubsidiary
Source: Company, ICICIdirect.com Research
Going forward, we expect the production to be ramped by its main coal producing subsidiaries namely SECL & MCL which operated at a capacity utilization of 80.5% & 75.6% respectively in FY13.
The company aims to produce 615 MT (upper end) in FY17
thereby witnessing cumulative annual growth rate (CAGR) of
8.0% in FY13-17E. Out of 615 MT, it proposes to produce
30.2% from its existing mines, 54.2% from projects under
implementation and 15.6% from new projects to be taken up
Exhibit 18: Coal Production Trend
431 436
452462
485
509
380
400
420
440
460
480
500
520
FY11 FY12 FY13 FY14E FY15E FY16E
milli
on to
nne
(MT)
Source: Company, ICICIdirect.com Research
CIL has proposed a capital outlay of | 25,400 crore in the
Twelfth Plan (2012-17) plus an ad hoc provision of | 35,000
crore for acquisition of assets abroad and development of a
new coal block in Mozambique
FY13-16E CAGR : 4%
For FY15E, the company has set the coal production & off-take target at 507 MT & 520 MT respectively
ICICI Securities Ltd | Retail Equity Research Page 9
Competitive cost of production
CIL produces ~90% of its coal through open cast mining and witnesses low stripping ratio (1.8 during the nine months ended FY14), thereby ensuring that reserves are easily extractable. Hence, this helps to position the company as among the lowest cost coal producers in the world. Exhibit 19: Peer comparison
Company
Reserves (million tonne)
Production (million tonne)
Sales (million tonne)
R/P ratio
Realisation (US$ per
tonne)
EBITDA/tonne (US$ per
tonne)
CoP/tonne (US$ per
tonne)
Coal India Ltd 21754 452 465 47 23.7 5.3 18.4
Peabody Energy 9285 NA 252 NA 27.9 4.2 23.7
Bayan resources 476.9 14 15 35 78.0 8.0 70.0
Arch Coal 5490 NA 140 NA 20.9 3.1 17.8Z
Source: Company, ICICIdirect.com Research
Exhibit 20: Cost of production (adjusted for overburden removal)
753804
994 10111064 1098 1111
600
700
800
900
1000
1100
1200
FY10 FY11 FY12 FY13 FY14E FY15E FY16E
| pe
r ton
ne
Source: Company, ICICIdirect.com Research
Exhibit 21: Expenditure break-up
96 118 141 150 157 158
446
609 587 621 635.4 650.6
41
46 5050 52 52
31
7 1315 15 15
109
113 125146 150 152
53
51 5757 55 50
0
200
400
600
800
1000
1200
FY11 FY12 FY13 FY14E FY15E FY16E
| pe
r ton
ne
COGS Employee benefit expenses Power & Fuel ExpensesWelfare expenses Repairs Contractual ExpensesOther Expenses
Source: Company, ICICIdirect.com Research
The new wage agreement for non-executive employees of the coal industry was signed on January 31, 2012 and will apply retrospectively from June 30, 2011 with validity till June 30, 2016. The agreement envisages a 25% increase in gross wages of non-executive employees. The settlement of wage bill gives certainty to the company’s operations, going forward, and provides some cushion against any labour unrest
We have taken a modest hike of 7% in wage costs per year from FY14E to FY16E.
Employee cost comprises a massive ~60% of the entire expenses in mining coal. The other notable cost is that of power & fuel
One time wage settlement, prospectively
The cost of production in case of open cast mines is ~| 700-800 per tonne, which is in the lowest decile of the global cost curve and at almost one-fourth of underground mining cost of ~| 3000-4000 per tonne. CIL’s blended cost of production stands at ~| 1050/tonne (~US$18 /tonne).
ICICI Securities Ltd | Retail Equity Research Page 10
Indian power demand scenario As of January 2014, out of the total installed power generation capacity of 234,602 MW, thermal coal based power generation capacity accounted for a massive 59% share with installed capacity at 138,903 MW.
Exhibit 22: Power generation installed capacity as of January 2014
MW % Share MW % Share MW % Share MW % Share MW % Share MW % Share MW % Share
Coal 76,049 53 77,649 52 84,198 53 93,918 54 112,022 56 130,221 58 138,903 59
Diesel 1202 1 1200 1 1,200 1 1,200 1 1,200 1 1,200 1 1,200 1
Gas 14,656 10 14,877 10 17,056 11 17,706 10 18,381 9 20,110 9 20,381 9
Thermal (MW) 91907 64 93726 63 102454 64 112,824 65 131,603 66 151,531 68 160,484 68
Hydel 35,909 25 36,878 25 36,863 23 37,567 22 38,990 20 39,491 18 39,875 17
Renewable 11,125 8 13,242 9 15,521 10 18,455 11 24,503 12 27,542 12 29,463 13
Nuclear 4,120 3 4,120 3 4,560 3 4,780 3 4,780 2 4,780 2 4,780 2
Total 143,061 147,966 159,398 173,626 199,877 223,344 234,602
Jan-14FY13FY 09 FY 10 FY11 FY12FY 08
Source
Source: Ministry of Power, ICICIdirect.com Research
Exhibit 23: Electricity generation (fuel type) January 2014 (MW)
Gas, 20381, 9%
DSL, 1200, 1%
Nuclear, 4780, 2%
Hydro, 39875, 17%
RES, 29463, 13%
Coal, 138903, 59%
Source: CEA, ICICIdirect.com Research RES – renewable energy
Thermal capacity upcoming in India The Planning Commission has set a target of 88,537 MW as the additional power capacity for the current Twelfth Five Year Plan ending March 2017 in the backdrop of the Eleventh Five Year Plan wherein the capacity addition was 67,548 MW (including approximately 17 GW renewable) against the target of 78,700 MW.
Exhibit 24: Power generating capacity (GW)
105 108 113 118 124 132 143 148 159 174200
223 235
288
050
100150200250300350
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
Jan-
14
FY17
E
Source: Ministry of Power, ICICIdirect.com Research
Out of the planned 88,537 MW capacity, thermal (coal, gas) would make up 72,340 MW while hydro would account for 10,897 MW and nuclear power the remaining 5300 MW.
With increasing capacity addition planned in the Twelfth Plan Year period, there exists unquenchable demand for coal, which bodes well for Coal India. It is envisaged that coal demand will reach ~980 MT by FY17E out of which CIL is expected to supply ~615 MT (63%)
ICICI Securities Ltd | Retail Equity Research Page 11
Fuel supply agreement CIL’s fuel supply agreement (FSA) can be broadly categorised into:-
a) FSA with power producers (utilities, private and independent) b) FSA with non-power producers c) FSA with state nominated agencies
New FSA regime CIL has modified the FSAs to be signed with power companies. As per new FSA norms, for power plants commissioned post 2009 CIL will supply 80% of the annual contracted quantity (ACQ). Considering the limitation of producing coal CIL has formulated the FSA such that out of 80% of ACQ, 65% will be supplied through CIL’s own coal fields while the balance 15% will be supplied through imports. The imports are not the prerogative of Coal India and the power producer with whom the FSA has been signed has the right to import themselves, through any third-party or through Coal India, the proportion of which will, however, be registered as deemed delivered. It has been proposed that imported coal be supplied on a cost plus basis i.e. cost of imported coal plus any additional charges incurred by CIL and a service charge to CIL. The quantity supplied by CIL will gradually increase from 65% of ACQ till FY15 to 67% of ACQ by FY16 and further to 75% of ACQ from FY16 onwards. The consequent composition of imported coal is to be reduced from 15% till FY15 to 10% in FY16 and further to 5% from FY16 onwards. CIL currently supplies 90% of ACQ to power plants commissioned before 2009 and will continue to do so in future as well. Exhibit 25: New penalty methodology delivery/lifting of coal in a year(% of ACQ) Upto FY2015 FY2016 FY 2016 onwards
80-100 0 0 075-80 1.570-75 565-70 5 1060-65 5 10 2055-60 10 20 4050-55 20 40 40<50 40 40 40
% penalty for the failed quantity (@ Wt. avg of base prices of grades of coal supplied)
1.51.5
Source: Company, ICICIdirect.com Research
Even though the new penalty clause does provide marginally higher degree of comfort to power companies with respect to supply of coal, provisions such as deemed delivery, force majeure as well as even railway failure (Railways not allotting wagons or not placing wagons for loading) would be considered before computing level of delivery, acting as a safety net from potential levy of penalties. The company is also entitled to performance incentive for delivery in excess of 90%, which is as follows:- Exhibit 26: Performance incentive
% of actual deliveries% incentive (@ Wt. avg of base prices of grades of coal supplied)
90-95 1095-100 20>100 40
Source: Company, ICICIdirect.com Research
We believe the finalisation of the penalty clause provides visibility over CIL’s production and offtake volumes, going forward. The proposed penalty structure is a mechanism, which is not adverse for CIL while, at the same time, providing comfort of fuel security to its customers.
The penalty on shortfall quantity is to be calculated on an incremental shortfall basis (methodology same as income tax calculation) with penalty rate within each slab varying on a linear basis depending on the shortfall percentage
ICICI Securities Ltd | Retail Equity Research Page 12
E-auction It is the route through which CIL realises its best margins but does not enjoy autonomy over the same. The quantity of coal to be offered by the e-auction route is as per the directive of Ministry of Coal (MoC). The company does not have the relevant authority to decide on the same though it is reviewed from time to time by the MoC.
Exhibit 27: Sales type (volume) bifurcation
91.9 87.1 88.4 89.0 88.5 89.5 88.3 89.9 90.7
10.5 11.7 10.1 9.311.511.08.1 11.612.9
020406080
100
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13
FY20
14E
FY20
15E
FY20
16E
%
FSA E-auction
Source: Company, ICICIdirect.com Research
Exhibit 28: E-auction realisations
1347 1481 15831846
2599 25442216 2306 2220
0
500
1000
1500
2000
2500
3000
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13
FY20
14E
FY20
15E
FY20
16E
(|/to
nne)
Source: ICICIdirect.com Research
Any upside in e-auction sales bodes well for the company. However, we remain cautious in this regard and have made conservative estimates for e-auction sales volume to the tune of 50 MT in FY15E and 48 MT in FY16E. On the back of downward trending international coal prices, we also expect e-auction sales to fetch lower realisations, going forward. We expect e-auction realisations to decline at a CAGR of 4.4% in FY13-16E to | 2220/tonne in FY16E (FY13: | 2544/tonne).
Beneficiation of coal India’s coal reserves are of low quality with high moisture and ash content, which has greater tendency to pollute the environment making coal washing increasingly important. Moreover, the company can realise better margins if it increases its coal beneficiation capabilities as the additional costs incurred in coal beneficiation are lower than the incremental price realised by selling the same. Exhibit 29: Current beneficiation capacity
Particulars Number Capacity (MT) Number Capacity (MT)Coking coal washeries 12 22.18 14 92Non coking coal 5 17.22 6 19.1Total operational washeries 17 39.4 20 111.1
Existing Expansion planned
Source: Company, ICICIdirect.com Research
The company has also proposed that all new open cast mining projects with coal production capacities greater than 2.5 MTPA not linked to pit head customers will be equipped with dedicated beneficiation facilities. The company proposes to start 20 new washeries with an additional capacity of 111.1 MT (six coking coal- 19.1 MT and 14 non-coking coal – 92 MT) and has finalised the tender for four washeries with a total capacity of 22.5 MT. CIL expects to commission two coal washeries by the end of FY14/earlier FY15. Going forward, we expect total washed coal sales to grow at a CAGR of 4.5% in FY13-16E to 16 MT in FY16E.
Beneficiated coal forms a mere ~3-4% of the entire sales volume. Beneficiated coal sales in FY13 stood at 14.07 MT out of the total coal sales of 465 MT. In terms of value, beneficiated coal constitutes ~5-7% of the entire topline
ICICI Securities Ltd | Retail Equity Research Page 13
Improved availability of rail rakes to support sales growth Railway rakes form the majority medium of transport of coal from CIL’s coalfields to power plants. In FY13, 54% of the entire sales volume (offtake) was transported through railway rakes with the rest being transported through merry-go-round (MGR, 19%) rails and road (25%). Therefore, availability of rakes is an importance parameter determining the coal off take from CIL.
Exhibit 30: Transportation sources bifurcation
50 52 51 48 47 51 53 54
24 23 22 21 21 20 18 19
22 22 24 28 30 27 26 25
0
20
40
60
80
100
120
FY20
06
FY20
07
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13
%
Rail MGR Road
Source: Company, ICICIdirect.com Research
Exhibit 31: Rake mathematics
Particulars Units FY11 FY12 FY13
Daily rake availability No 162.4 169.2 187.0
Tonnage per rake tonne 3652 3710 3710
Per day offtake MT 0.59 0.63 0.69
Yearly offtake (Rail) MT 216.5 229.1 253.2
Total yearly offtake MT 424.5 433.1 465.18
Share of total sales % 51 53 54 Per Day off-take= Daily rake availability x tonnage per rake
Yearly off-take= Per day off take x 365
Source: ICICIdirect.com Research
Availability of rakes has improved notably over the last couple of years with average rake availability increasing from 162 rakes/day in FY11 to 169 rakes/day in FY12 and further to 187 rakes/day in FY13, thereby helping CIL liquidate its inventory and increase the coal offtake from its mines. We expect rake availability to improve, going forward, on the back of (i) the central government’s thrust to increase rake supply & (ii) CIL’s novice venture to build the new rail network in the country.
Recently announced SPV; profound step to increase offtake! CIL recently announced it will float a special purpose vehicle (SPV) to build a 180-km rail network for evacuating untapped coal in Chhattisgarh. In the proposed SPV, CIL will fund | 2880 crore (64%) in the total capex of | 4500 crore and is expected to recover the same over time by levying a user charge to its customer. CIL will hold 64% in the said SPV, the rest being shared between Ircon (Indian Railways entity) and the Chhattisgarh government. The present move is part of a much broader plan wherein CIL envisages producing and supplying additional 300 MT of coal by laying a 300 km rail network. Recently, the Cabinet Committee of Investments (CCI) has granted approvals for the three key railway projects; Tori-Shivpur-Kathautia (Hazaribagh) triple line for the North Karanpura Coalfield in Jharkhand, Jharsuguda-Barpalli double line for IB Valley coalfield in Orissa and Bhupdeopur-Raigur-Mand in Chhattisgarh, which were stalled for nearly a decade due to various reasons.
Coal regulator; to have minimal impact Recently, the Central government has set up a Coal Regulator Authority (CRA), under the administrative control of the ministry of coal. Prima facie the role of the regulator is likely to be restricted to that of an advisory body, laying down broader principles & methodologies for coal price determination, procedure for automatic coal sampling among others. On the pricing front, CIL would retain the final authority for fixing coal prices, subject to the coal ministry’s approval. Though CIL retaining final authority on coal prices is a key positive for the company, allaying investor worries.
ICICI Securities Ltd | Retail Equity Research Page 14
Coal pricing Coal India’s realisations are at a discount to global prices partly due to low calorific value and partly on account of the central government’s directive to sell coal at low prices. Majority of its total coal sales is being sold at a price that is ~50% lower than global prices (on an energy adjusted basis). Hence, on account of the steep discount, CIL’s realisations are largely insulated from a swing in global coal prices.
Exhibit 32: Selling price product wise
12352599
1403
6461
13352228
14432544
1436
5701
14622300
147212782200
1394
5067
1699 231714201298
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FSA E-Auction Blended Raw Coal Washed CokingCoal
Washed NonCoking Coal
Blended WashingCoal
Blended Overall
| pe
r ton
ne
FY12 FY13 9MFY14
Source: Company, ICICIdirect.com Research
Since January 31, 2012 the company has shifted to a gross calorific value (GCV) pricing mechanism replacing useful heat value (UHV) pricing mechanism though its implementation will be done in phases. The GCV system will replace the existing seven grades (A-G) with 17 bands of calorific values with a bandwidth of 300 kilo calorie.
Exhibit 33: Coal India pricing
Grade
Power utilities (including IPPs),
fertiliser & defence sector other users
Power utilities (including IPPs),
fertiliser & defence sector other users
Kcal/kg | per tonne | per tonne | per tonne | per tonne
>7000 G 1 * * * *
6700 - 7000 G 2 4870 4870 4870 4870
6400 - 6700 G 3 3890 3890 3890 3890
6100 - 6400 G 4 3490 3490 3490 3490
5800 - 6100 G 5 2800 2800 2800 2800
5500 - 5800 G 6 1600 2150 1920 2590
5200 - 5500 G 7 1400 1890 1680 2270
4900 - 5200 G 8 1250 1690 1510 2030
4600 - 4900 G 9 970 1310 1170 1570
4300 - 4600 G 10 860 1160 1030 1390
4000 - 4300 G 11 700 950 840 1150
3700 - 4000 G 12 660 890 800 1070
3400 - 3700 G 13 610 820 730 980
3100 - 3400 G 14 550 740 670 890
2800 - 3100 G 15 510 680 610 820
2500 - 2800 G 16 450 610 550 730
2200 - 2500 G 17 400 540 480 640
* For GCV exceeding 7000 kcal\kg, the price shall be | 150/- per 100 kcal\kg over & above the price of
6700-7000 Kcal\kg band
Pithead run of mine price for non-coking coal (Dec 16, 2013). WCL
Pithead run of mine price for non-coking coal (May 27, 2013), CIL excl WCL
GCV Bands
Source: Company, ICICIdirect.com Research
As per our analysis, the present move from UHV to GCV has resulted in a blended increase in realisations of ~4-6% for CIL
ICICI Securities Ltd | Retail Equity Research Page 15
Recently, at the time of announcement of its FY13 results, CIL went for a price increase on FSA supplied coal due to rising fuel costs and rise in contractual labour expenses. The company has taken a 10% hike in coal prices for coal with GCV ranging from 2200-6000 kcal (for Grade G5-G17) and 12% reduction for coal with GCV ranging from 6100-6700 kcal (for Grade G3-G4). This cumulates into an average price hike of 4.8% effective from June 2013.
Supply at non-subsidised rate (thermal coal) to non power companies The CIL board has objected to the supply of subsidised thermal coal to non-power industries (metals and cement), the end product prices of which are not administered by the Government of India (GoI). CIL currently sells coal to metal and cement manufacturers at a mark up of ~30% as compared to the price at which it sells coal to power companies. Therefore, there exists significant room for price increase, between the FSA price for non-power players and e-auction price paid by others. There exists a possibility wherein steel and cement manufacturers will have to buy coal in e-auction and end their linkages, thereby resulting in incremental EBITDA for CIL, which could positively affect our target price. If this were to happen then it could result in an increase in our target price to the tune of ~| 6/share. Being conservative, we await clarity on the issue and have not used the same in our target price calculation. Trimming workforce, increasing man-power efficiency CIL has been gradually reducing its work force by offering lucrative VRS schemes for its employees. This, in turn, has helped the company to increase the productivity per employee.
Exhibit 34: International pricing trend
73.161.042.2
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Apr-1
0Ju
n-10
Aug-
10Oc
t-10
Dec-
10Fe
b-11
Apr-1
1Ju
n-11
Aug-
11Oc
t-11
Dec-
11Fe
b-12
Apr-1
2Ju
n-12
Aug-
12Oc
t-12
Dec-
12Fe
b-13
Apr-1
3Ju
n-13
Aug-
13Oc
t-13
Dec-
13Fe
b-14
US$/
tonn
e
NewCastle 6000 Kcal Indonesia 5400 Kcal Indonesia 4200 Kcal
Source: Bloomberg,ICICIdirect.com Research
The average coal output of 527 tonne per employee in FY02 has increased to 1240 tonne per employee in FY13. The current employee strength of Coal India as of January 2014 is 3,48,713 employees
Exhibit 35: International pricing trend
5309
87
5106
71
4930
61
4765
77
4603
69
4458
15
4327
10
4192
14
4047
44
3902
43
3774
47
3647
36
527 569 621 679 746 810 877 9631066 1105 1155 1240
0
200000
400000
600000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
No
0
500
1000
1500
tonn
e
Average Man Power
Average output per man per year
Source: Bloomberg,ICICIdirect.com Research
The current freight rate from South Africa to India’s west coast is ~US$16.5/tonne (US$17.0/tonne for the east coast) while that from Indonesia to India’s west cost is ~US$11/tonne (US$9.5/tonne for the east coast)
ICICI Securities Ltd | Retail Equity Research Page 16
Financials Modest revenue growth in FY13-16E aided by higher sales volume We expect CIL to clock modest revenue growth of 4.1% CAGR in FY13-16E primarily on the back of an increase in coal sales volume at a CAGR of 3.7% in FY13-16E and flat blended realisations. We have modelled coal sales volume of 471 MT in FY14E (CIL’s target 492 MT), 496 in FY15E (CIL’s target 520 MT) and 518 MT in FY16E. We expect blended realisations to drop from | 1472/tonne in FY13 to | 1434/tonne in FY14E on the back of subdued e-auction coal realisations and expect coal grade slippages to finally stabilise around | 1488/tonne in FY16E.
Exhibit 36: Revenue growth
62,41568,303 68,008
72,69577,088
0
20,000
40,000
60,000
80,000
FY12 FY13 FY14E FY15E FY16E
| cr
ore
Source: Company, ICICIdirect.com Research
Exhibit 37: Coal sales volume & blended realisation
433464 471
496518
1441
1472 1467
1488
1434
380400420440460480500520540
FY12 FY13 FY14E FY15E FY16Em
illion
tonn
e (M
T)1400
1420
1440
1460
1480
1500
| pe
r ton
ne
Sales Blended Realizations
Source: Company, ICICIdirect.com Research
The bifurcation of coal supply can be explained using the table below:
For power plants commissioned post 2009, the company has received a presidential directive for coal supply to power capacities of 78000 MW. We, however, have abstained from using it in our coal supply calculations as the CIL management expects the upper limit of power plants commissioning by FY16-17 at 60,000 MW of power capacity only. Considering the increasing thrust for supplying coal to the power sector under FSA route, we also expect a modest reduction of e-auction sales volume (50 MT in FY15E & 48 MT in FY16E), going forward.
Exhibit 38: Coal supply bifurcation Particulars 2013 2014E 2015E 2016E
Units Commissioned by March 2009 (MW) 67370 67370 67370 67370
Committed quantity as of March 2009 FSAs (MTPA) 305 306 306 306Annual contracted quantity ACQ (%) 90 90 90 90
Actual Supply (MTPA) (Power) 274 275 275 275
Committed quantity to Non-power sector 107 107 107 107
Actual Supply (%) 60 60 60 60
Actual Supply (MTPA) (Non-Power) 64 64 64 64
Total Supply through old FSA 339 340 340 340Estimated E-Auction Qty 49 55 50 48I-Direct Coal Supply Estimates 464 474 496 518Coal available for new FSA's 76 80 106 130
Source: Company, ICICIdirect.com Research
FY13-16E CAGR: 4.1%
CIL will continue to supply coal to the extent of 90% of ACQ for power plants commissioned before March 2009 (power capacity of 67370 MW). It will result in total offtake of ~275 MT of coal from these power plants, going forward, in FY14E, FY15E and FY16E For non-power sector, CIL only meets ~60% of their requirement (107 MT) resulting in total offtake of ~64 MT of coal from these non-power customers
For power plants commissioned after March 2009, CIL needs to meet only 80% of ACQ (coal requirement) of these power plants, which includes 65% of its own supply and 15% through coal imports till FY15. In FY16E, however, these power plants need to be supplied with domestic coal supplies comprising 67% with coal imports constituting 10%
ICICI Securities Ltd | Retail Equity Research Page 17
The company’s e-auction coal sales realisations always came in at a discount to the landed costs of imported coal (average of ~25% in the last 11 quarters). Therefore, continuing the trend we have taken a discount of 25% to landed costs of imported coal in FY15E & FY16E, thereby assuming international coal price in FY15E & FY16E at US$57.5/tonne & US$55/tonne, respectively, for 5000 kcal Indonesian coal (price as of March 2014 at US$59.1). We have also assumed transportation & port charges at US$10 and currency assumption of US$: INR: 58 in FY15E and FY16E each.
We expect e-auction realisations to remain subdued on the back of muted global coal demand. We expect e-auction realisations to decline at a CAGR of 4.4% from | 2544/ tonne in FY13 to | 2200/tonne in FY16E.
Exhibit 39: Assumptions
Particulars Units FY11 FY12 FY13 FY14E FY15E FY16EFY13-16E
CAGRTotal Production MT 431 436 452 462 485 509 4.0%Raw Coal SalesFSA Sales MT 356 362 397 402 431 454 4.5%E-Auction Sales MT 48 51 49 55 50 48 -0.8%Total Raw Sales MT 404 413 446 457 481 502 4.0%Washed Coal Sales Washed Coal ( Coking) MT 3 3 3 2 3 3 -2.5%Washed Coal ( Non- Coking) MT 12 14 11 11 12 14 6.5%Total Washed Coal Sales MT 15 17 14 13 15 16 4.8%
Total Sales MT 423 433 464 471 496 518 3.7%
FSA Realizations | per tonne 1049 1235 1298 1290 1338 1378 2.0%E-auction Realization | per tonne 1846 2599 2544 2216 2306 2220 -4.4%Blended Raw Coal Realization | per tonne 1143 1403 1436 1401 1439 1459 0.5%Washed Coal (Coking) Realization | per tonne 5693 6461 5701 5050 5104 5336 -2.2%Washed Coal (Non-Coking) Realization | per tonne 1330 1335 1462 1741 1793 1847 8.1%Total Blended Realization | per tonne 1183 1441 1472 1434 1467 1488 0.4%
EBITDA per tonne | 317 362 389 304 302 310 -7.3%Yield on Bank Deposits % 6.3 9.7 9.7 9.0 9.5 9.3
Source: Company, ICICIdirect.com Research
Exhibit 40: E-auction realisation trend
0.66
0.59 0.
75
0.59
0.56
0.57
0.57
0.58
0.59
0.57
0.90
0.81
0.77 0.81
0.82 0.85
0.84
0.83
0.78
0.75
27 28 27
32 3330
25 2532
2
0.000.100.200.300.400.500.600.700.800.901.00
Q1FY
13
Q2FY
13
Q3FY
13
Q4FY
13
Q1FY
14
Q2FY
14
Q3FY
14
Q4FY
14E
FY15
E
FY16
E
|/kc
al
0
5
10
15
20
25
30
35%
Coal India Energy Adjusted Price Landed Cost of International Coal % Discount
Source: Company, ICICIdirect.com Research
At the beginning of FY14 (in May 2013), CIL had increased the price of coal supplied through FSA route. However the same was not reflected in subsequent quarters due to one time sell-off of obsolete inventory in Q2FY14 and coal grade slippages in Q3FY14 (92.5% grade compliance vis-à-vis 95% in FY13). Consequently, we expect the FSA realisations to decrease in FY14E to | 1290/tonne from | 1298/tonne in FY13 However, witnessing the pressure on margins on account of higher employee costs & other overheads, the company increased the price of coal supplied by its subsidiary (WCL) and also increased the coal sizing & loading charges in December 2013. Consequently, we expect FSA realisations to improve at a CAGR of 2.0% in FY13-16E to | 1378/tonne in FY16E
ICICI Securities Ltd | Retail Equity Research Page 18
EBITDA to remain muted; margins to sustain at ~20%, going forward We expect EBITDA margins and corresponding EBITDA/tonne to remain subdued, going forward, on the back of a decline in e-auction sales volume and realisations. On an absolute basis, EBITDA is expected to de-grow at a CAGR of 3.9% in FY13-16E primarily on the back of subdued e-auction coal realisations (CAGR drop of 4.9% in FY13-16E). This, however, will get cushioned to some extent by the growth in total coal sales volume (growth at 3.7% CAGR in FY13-16E). EBITDA margins are also expected to decline from 26.5% in FY13E to ~21% in FY15E and FY16E.
Exhibit 41: EBITDA margins trend
15,6
67.8
18,0
83.6
14,4
12.9
14,9
59.4
16,0
53.2
25.1 26.5
21.2 20.6 20.8
-
5,000
10,000
15,000
20,000
FY12 FY13 FY14E FY15E FY16E
| cr
ore
0
5
10
15
20
25
30
%
EBITDA EBITDA Margin
Source: Company, ICICIdirect.com Research
Exhibit 42: …corresponding EBITDA/tonne
1183
1441 1468 1434 1467 1488
317 362 389304 302 310
0200400600800
1000120014001600
FY11 FY12 FY13 FY14E FY15E FY16E|
per t
onne
Realization EBITDA/tonne
Source: Company, ICICIdirect.com Research
PAT to remain subdued, although dividend payout to remain healthy!! We expect CIL’s PAT to de-grow at 3.2% CAGR in FY13-16E on the back of subdued EBITDA and, at the same time, a decline in other income yield. We expect the company to realise a pre-tax yield of 9.5% and 9.25% on its liquid assets in FY15E and FY16E, respectively.
Exhibit 43: PAT & PAT margins trend
14,7
88
17,3
56
14,0
61
14,5
51
15,7
36
23.725.4
20.7 20.0 20.4
-
5,000
10,000
15,000
20,000
FY12 FY13 FY14E FY15E FY16E
| cr
ore
-
5
10
15
20
25
30
%
PAT PAT Margins
Source: Company, ICICIdirect.com Research
Exhibit 44: Healthy dividend payout to continue
23.4 27
.5
22.3
23.0
24.9
10.0 14
.0
29.0
12.0
12.0
50.9
130.3
48.252.142.7
0
5
10
15
20
25
30
35
FY12 FY13 FY14E FY15E FY16E
| pe
r sha
re
0
20
40
60
80
100
120
140
%
EPS DPS Payout Ratio
Source: Company, ICICIdirect.com Research
CIL has gradually increased the dividend payout from 23% in FY11 to 51% in FY13. In FY14E, however, at the behest of the central government the company has given a one-time special dividend amounting to | 29/share. We believe the dividend payout will remain healthy, going forward, as the company possesses surplus cash on its books with modest capex requirements and generates good free cash flows (~| 14000 per year). We expect the payout to be ~52% (dividend per share | 12) in FY15E and 48% (dividend per share | 12) in FY16E.
The company has been impacted by the deregulation of diesel prices for bulk customers (January 2013), which will result in greater cost of materials consumed, going forward.
The company has increased the wages of its contractual labour towards the end of FY13. On a full year basis, it should lead to an increase in contractual expenses to the tune of ~| 1000 crore in FY14E
ICICI Securities Ltd | Retail Equity Research Page 19
Stable RoCE and RoE ratios The company witnessed healthy return ratios with RoCE and RoE in FY13 at 35.8% and 32.3%, respectively. Going forward, we expect CIL to report slightly subdued return ratios on the back of a large equity base with surplus cash & cash equivalents.
Valuation We have modelled coal sales volume growth at a CAGR of 3.7% in FY13-16E with consequent coal sales at 471 MT in FY14E, 496 MT in FY15E and 518 MT in FY16E. During FY13-16E, we expect the topline to grow at a CAGR of 4.1% with EBITDA and PAT de-growing at 3.9% and 3.2%, respectively. CIL has a strong balance sheet with robust cash flow and healthy liquidity position. We have valued the stock at 6.5x FY16E adjusted EV/EBITDA, thereby valuing the company at its international peers’ average FY16E EV/EBITDA of 6.5x and arrived at a target price of | 320. A healthy dividend payout and impressive dividend yield (~4.3% on a normalised basis) reiterate our positive stance on the company.
Going forward, RoCE and RoE are on a declining trend on the
back of huge cash reserves, which tend to swell the equity base
Exhibit 45: Return ratios – to remain stable albeit with slight declining trajectory
32.6
36.6
25.427.029.432.3
35.8 34.231.1 29.3
0
10
20
30
40
FY12 FY13 FY14E FY15E FY16Ein
%RoCE RoE
Source: Company, ICICIdirect.com Research
Exhibit 46: EV/EBITDA valuation
Particulars
FY16E EBITDA (|Crore), A 16,053
OBR adjustment (| crore), B 3,463
FY16 adjusted EBITDA (| crore), C=A+B 19,516
Peer average multiple, D 6.5
Enterprise value (| crore), E= C*D 126,855
Net Cash & cash equivalent (| crore), F 75,509
Implied equity (| crore), G=E+F 202,364
No of shares (crore) , H 631.6
Target price (|), G/H 320
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 20
Peer comparison
Coal India can be compared to its international peers that include the pure play coal miners namely Peabody Energy (US), Arch Coal (US), Bayan Resources (Indonesia) & Adaro Energy (Indonesia).
Exhibit 47: Coal India vis-à-vis global peers
2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016
1 China Shenhua China 45506 57239 4.2 4.2 4.0 NA 6.3 6.2 6.0 NA 1.0 0.9 0.8 NA 15.8 14.6 13.5 NA
2 Adaro Energy Indonesia 2751 4782 6.3 5.4 4.7 4.8 12.3 9.6 8.6 8.6 1.1 1.0 0.9 0.8 8.8 9.5 11.1 11.5
3 Peabody Energy US 4352 9949 10.6 10.0 7.0 6.0 NA NA 20.7 11.1 1.4 1.1 1.1 1.0 -11.9 0.4 5.0 9.7
4 Arch Coal US 996 4988 20.9 15.4 9.4 8.7 NA NA NA NA 0.4 0.5 0.6 0.6 -25.1 -17.8 -15.5 -13.9
Peer Average 10.5 8.8 6.3 6.5 9.3 7.9 11.8 9.8 1.0 0.9 0.8 0.8 -3.1 1.7 3.5 2.4
Coal India Ltd India 28687 18174 5.5 7.0 6.2 5.4 10.4 12.8 12.4 11.5 3.7 4.4 3.9 3.4 35.8 34.2 31.1 29.3
RoE (%)P/B (X)P/adj EPS (X)EV/EBITDAMarket cap EVS.No Company
Base country
Source: Bloomberg ICICIdirect.com Research For all companies Market Cap & EV are in US$ Million
Average trading multiples
Exhibit 48: 1 year forward EV/EBITDA (EBITDA adjusted for OBR)
50000
100000
150000
200000
250000
Nov
-10
Mar
-11
Jul-1
1
Nov
-11
Mar
-12
Jul-1
2
Nov
-12
Mar
-13
Jul-1
3
Nov
-13
Mar
-14
| cr
ore
EV 6x 7x 8x 10x
Source: Company, ICICIdirect.com Research
Exhibit 49: 1 year forward avg EV/EBITDA (EBITDA adjusted for OBR)
6.2
7.6
4
6
8
10
12
Nov
-10
Feb-
11
May
-11
Aug-
11
Nov
-11
Feb-
12
May
-12
Aug-
12
Nov
-12
Feb-
13
May
-13
Aug-
13
Nov
-13
Feb-
14
x
EV/EBITDA Average
Source: Company, ICICIdirect.com Research
Exhibit 50: 2 year forward EV/EBITDA (EBITDA adjusted for OBR)
50000
100000
150000
200000
250000
Nov
-10
Mar
-11
Jul-1
1
Nov
-11
Mar
-12
Jul-1
2
Nov
-12
Mar
-13
Jul-1
3
Nov
-13
Mar
-14
| cr
ore
EV 6x 7x 8x 10x
Source: Company, ICICIdirect.com Research
Exhibit 51: 2 year forward avg EV/EBITDA (EBITDA adjusted for OBR)
5.4
7.5
4
6
8
10
12
Nov
-10
Feb-
11
May
-11
Aug-
11
Nov
-11
Feb-
12
May
-12
Aug-
12
Nov
-12
Feb-
13
May
-13
Aug-
13
Nov
-13
Feb-
14
x
EV/EBITDA Average
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 21
Key Concerns Coal Ministry’s directive to sign 78000 MW Under the direction of Ministry of Coal, the board of directors of Coal India has approved signing of FSA for power capacities of 78000 MW (commissioned post 2009 till 2015). We have refrained from deriving coal demand from the aforesaid power capacities as we believe there will be a considerable delay in commissioning of the same. However, if we were to consider the additional 18000 MW (we have assumed FSA coal supply to capacities amounting to 60078 MW in FY15) it would have led to additional coal demand of ~80-85 MT from CIL. Since CIL is already falling short of the coal supply, this additional demand at worst would lead to additional penalties, which would negatively impact our target price.
Environment clearance A large number of CIL’s proposals are awaiting environmental clearances and are stuck at various stages of the approval process. We believe CIL will be granted the necessary approvals as a lot is at stake considering the investments made in the infrastructure sector including power & steel and the banking sector exposure to it.
Pricing issues Though the pricing of coal was completely deregulated with effect from January 1, 2000, still Coal India has to follow the government directive for deciding coal pricing. It is not yet open to the market forces of supply & demand. Since CIL sells its coal at a substantial discount to the equivalent price in international prices, hence, any severe correction in coal price coupled with appreciation of the rupee may hit its profitability. As per the current import policy (open general license), coal is allowed to be freely imported in the country.
E-auction volume may be sacrificed to fulfil FSA commitments
There exists a possibility that Coal India may be asked to sacrifice its e-auction sales and supply the same to domestic power plants to increase the electricity generation in our country. This will have a detrimental effect on our target price calculation wherein we may witness a price drop of ~| 1/share for each million tonne of diversion of e-auction coal sales volume (FY16E) to power producers under fuel supply agreements.
Renewable energy The thrust given by the central government and the need in response to climate change make it almost imperative to make additional capacity additions only in the renewable energy space. However, the corpus of investment and the gestation period involved in doing so limits the capacity additions envisaged, going forward. Exhibit 52: Comparison among sources of energy
Power sourcesRaw material COP
|/ unit Capex per MW*Gestation period
(in years) Remarks
Thermal (power) 0.6-2 | 4-5 crore 4-5 years DesiredThermal (gas) 1.7-4.4 | 3.5-4 crore 3-4 years Gas availability an issue
Hydro NA | 6-7 crore >5 years Seasonal in nature
Wind energy NA | 5-6 crore 1-1.5 years Seasonal in nature
Solar energy NA | 6-7 crore 1-1.5 years Seasonal in nature
* Figures are approximate, actual figures vary from project to project
Source: ICICIdirect.com Research
Comparing the costs and investments incurred, we believe the cost of production of thermal energy using coal is the lowest among all other sources of energy.
ICICI Securities Ltd | Retail Equity Research Page 22
Naxal attacks The company’s operations may get affected due its operations in Naxal hit areas, which includes Jharkhand, Chhattisgarh, Odisha and Assam.
Underground mining
The gradual shift in the company’s mining from open pit to underground will results in greater CoP. However, the same is to be weighed against the incremental (better) quality of coal that it will be able to produce, the realisation of which, we believe, should easily compensate for the same. Henceforth, any shift in mining operations i.e. from open cast to underground is expected to have an impact on the company’s margins. However, whether the impact will be positive or negative cannot be ascertained at this point of time.
Logistics issues may impact coal volumes Higher the numbers of rakes, better the offtake and, hence, enhanced earnings for CIL. The inability of railways to supply the same will hamper earnings, going forward.
Increase in account receivables; coal grade compliance issues In FY13, there was an unprecedented increase in account receivables on the books of CIL on account of its customers withholding their payments due to non-compliance of coal grade supplied by CIL. The majority of the dues are pending with NTPC, which is also its largest customer. We believe the matter is under arbitration and CIL is discussing this with its customers. However, there exists a possibility wherein both parties reach a solution and CIL agrees to settle the case at an amount, which is less than the current outstanding. In such a case, the difference is expected to be charged to the company’s P&L, thereby adversely impacting the profitability (there will not be any cash losses as cash is already being withheld).
CCI levying penalty for abuse of dominance In December 2013, the Competition Commission of India (CCI) found CIL abusing its dominance position and slapped a penalty of | 1773 crore. The penalty was levied against the complaint filed by Maharashtra State Power Generation Company and Gujarat State Electricity Corporation against CIL and its three subsidiaries: MCL, WCL and SECL for abuse of dominance by CIL. Consequently, post imposition of penalty, CIL appealed against the order at the appellate tribunal, which has stayed the CCI order with CIL submitting the requisite | 50 crore as a token penalty. The tribunal will further study the case and hear arguments from both parties before giving its judgment. We feel CIL did not abuse its dominant position in the domestic market. However, if such a case is found valid, it will set a wrong precedent and open the company to further litigation from other power producers (CIL’s customers).
ICICI Securities Ltd | Retail Equity Research Page 23
Financial Scorecard (Consolidated) Exhibit 53: Profit and Loss (| Crore)
(Year-end March) FY12 FY13 FY14E FY15E FY16ENet Sales 62,415.4 68,302.7 68,007.8 72,695.4 77,087.6 Other Operating Income - - - - - Total Operating Income 62,415.4 68,302.7 68,007.8 72,695.4 77,087.6
- - - - - - Raw Materials Consumed 5,504.1 6,062.1 6,191.6 7,782.3 8,184.3 Employee Expenses 26,387.4 27,320.8 29,433.2 31,493.6 33,698.1 Welfare expenses 317.6 622.4 695.0 743.5 777.0 Repairs 645.7 822.4 862.2 892.2 932.4 Contractual Expenses 4,901.0 5,802.0 6,935.2 7,435.3 7,873.5 Overburden removal adjustment 3,693.9 3,201.7 3,140.9 3,298.0 3,462.9 Power & Fuel 2,012.5 2,333.5 2,372.8 2,577.6 2,693.6 Total Operating Expenditure 46,747.6 50,219.1 53,594.8 57,736.0 61,034.4
EBITDA 15,667.8 18,083.6 14,412.9 14,959.4 16,053.2 Interest 54.0 45.2 33.4 36.7 40.4 Other Income 7,536.9 8,746.7 8,529.2 8,713.2 9,580.0 PBDT 23,150.7 26,785.2 22,908.8 23,635.8 25,592.8 Depreciation 1,969.2 1,813.0 1,846.9 1,917.5 2,105.6 PBT 21,267.2 24,979.0 21,028.2 21,718.4 23,487.2 Total Tax 6,479.0 7,622.7 6,967.1 7,167.1 7,750.8 PAT 14,788.2 17,356.4 14,061.1 14,551.3 15,736.4 EPS 23.4 27.5 22.3 23.0 24.9
Source: Company, ICICIdirect.com Research
Exhibit 54: Balance sheet (| Crore)
(Year-end March) FY12 FY13 FY14E FY15E FY16EEquity Capital 6,316.4 6,316.4 6,316.4 6,316.4 6,316.4 Reserve and Surplus 34,136.7 42,155.6 34,773.3 40,456.4 47,324.7 Total Shareholders funds 40,453.1 48,472.0 41,089.7 46,772.8 53,641.1 Total Debt 1,527.4 1,909.1 1,659.1 1,409.1 1,159.1 Minority Interest 53.6 63.6 63.6 63.6 63.6 Total Liabilities 44,011.1 52,750.6 45,118.3 50,551.4 57,169.7
Total Gross Block 38,096.4 39,010.0 39,510.0 42,010.0 47,510.0 Less: Accumulated Depriciation 24,656.1 25,544.9 27,391.8 29,309.3 31,414.9 Net Block 13,440.3 13,465.1 12,118.2 12,700.8 16,095.2 Capital Work In Progress 2,903.4 3,496.0 5,996.0 6,996.0 5,496.0 Total Fixed Assets 16,343.7 16,961.1 18,114.2 19,696.7 21,591.1
Investments 1,981.4 2,395.0 2,495.0 2,595.0 2,695.0
Inventory 6,071.3 5,617.8 4,928.0 3,914.9 3,054.6 Debtors 5,667.9 10,480.2 9,316.1 8,962.4 8,448.0 Loans and Advances 14,502.3 17,370.1 17,721.9 18,189.6 19,583.3 Other Current Assets 2,983.2 4,248.9 4,728.1 5,158.5 5,402.5 Cash 58,202.8 62,236.6 56,828.4 65,422.3 73,973.3
Creditors 19,109.2 17,222.9 16,769.0 17,924.9 19,007.9 Provisions 43,826.4 51,591.3 54,499.4 57,718.2 60,825.3 Net Current Assets 24,491.9 31,139.5 22,254.1 26,004.7 30,628.6 Total Assets 44,011.1 52,750.6 45,118.3 50,551.4 57,169.7
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 24
Exhibit 55: Cash flow statement (| Crore)
(Year-end March) FY12 FY13 FY14E FY15E FY16EProfit after Tax 14,788.2 17,356.4 14,061.1 14,551.3 15,736.4 Depreciation 1,969.2 1,813.0 1,846.9 1,917.5 2,105.6 Cash Flow before WC changes 16,757.4 19,169.4 15,908.0 16,468.8 17,842.0
Net Increase in Current Assets (6,003.9) (8,492.4) 1,022.9 468.7 (262.9) Net Increase in Current Liabilities 13,592.8 5,878.6 2,454.2 4,374.6 4,190.1 Net cash flow from operating activities 24,346.3 16,555.6 19,385.1 21,312.1 21,769.2
(Purchase)/Sale of Fixed Assets (3,412.4) (2,430.4) (3,000.0) (3,500.0) (4,000.0) Net Cash flow from Investing Activities (4,274.3) (3,566.0) (3,100.0) (3,600.0) (4,100.0)
Inc / (Dec) in Equity Capital - - - - - Total Outflow on account of dividend (7,499.9) (10,166.1) (21,431.4) (8,868.2) (8,868.2) Inc / (Dec) in Loan Funds 6.4 381.7 (250.0) (250.0) (250.0) Net Cash flow from Financing Activities (7,675.6) (8,955.7) (21,693.4) (9,118.2) (9,118.2)
- - - - - Net Cash flow 12,396.4 4,033.8 (5,408.3) 8,593.9 8,551.0 Cash and Cash Equivalent at beginning 45,806.4 58,202.8 62,236.6 56,828.4 65,422.3 Closing Cash/ Cash Equivalent 58,202.8 62,236.6 56,828.4 65,422.3 73,973.3
Source: Company, ICICIdirect.com Research
Ratios Exhibit 56: Ratio Analysis
(Year-end March) FY12 FY13 FY14E FY15E FY16EPer Share DataEPS 23.4 27.5 22.3 23.0 24.9 Cash EPS 26.5 30.4 25.2 26.1 28.2 BV 64.0 76.7 65.1 74.1 84.9 Operating profit per share 24.8 28.6 22.8 23.7 25.4 DPS 10.0 14.0 29.0 12.0 12.0 Operating RatiosEBITDA / Total Operating Income 25.1 26.5 21.2 20.6 20.8 PAT / Total Operating Income 23.7 25.4 20.7 20.0 20.4 RoE 36.6 35.8 34.2 31.1 29.3 RoCE 32.6 32.3 29.4 27.0 25.4 RoA 33.6 32.9 31.2 28.8 27.5 Valuation RatiosEV / EBITDA 7.9 6.7 8.7 7.8 6.7 P/E 12.2 10.4 12.8 12.4 11.5 EV / Net Sales 2.0 1.8 1.8 1.6 1.4 Sales / Equity 1.5 1.4 1.7 1.6 1.4 Market Cap / Sales 2.9 2.6 2.7 2.5 2.3 Price to Book Value 4.5 3.7 4.4 3.9 3.4 Turnover RatiosAsset turnover 1.6 1.4 1.4 1.5 1.4 Debtors Turnover Ratio 11.0 6.5 7.3 8.1 9.1 Creditors Turnover Ratio 3.3 4.0 4.1 4.1 4.1 Solvency RatiosDebt / Equity 0.0 0.0 0.0 0.0 0.0 Current Ratio 1.4 1.5 1.3 1.3 1.4
Quick Ratio 0.5 0.5 0.5 0.5 0.5
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 25
Annexure Coal: Strategic asset for developing economies
Among all major sources of primary energy available, coal feeds ~30% of the energy needs globally. Its proportion amid primary fuel consumption varies from country to country wherein it is as low as 1.3% in the oil rich Middle East and as high as 68.5% in an emerging economy like China. In India, its proportion stands at 53% in CY12. Exhibit 57: World primary fuel (energy) consumption (CY12) (in million tonne oil equivalent)
Particulars OilNatural
gas CoalNuclear energy
Hydro electricity
Renewable Energy Total
Total North America 1017 820 469 207 156 57 2725
Total S. & Cent. America 302 149 28 5 166 16 665Total Europe & Eurasia 880 975 517 267 191 99 2929Total Middle East 376 371 10 0 5 0 762
Total Africa 167 111 98 3 24 1 403
Total Asia Pacific 1389 562 2609 78 289 64 4992
Total World 4131 2987 3730 560 831 237 12477
China 484 129 1873 22 195 32 2735India 172 49 298 7 26 11 563
Source: BP Statistics, ICICIdirect.com Research
Exhibit 59: India primary fuel consumption by fuel type (CY12)
Renewables2%
Hydro electricity5%
Nuclear energy1%
Coal53%
Natural gas9%
Oil30%
Source: BP Statistics, ICICIdirect.com Research
In developed economies like the Americas and Europe, coal
constitutes ~17% of primary fuel consumption whereas in Asia
Pacific its proportion stands at ~52%
Coal meets 30% of the world’s primary energy requirement,
second only to oil, which meets 33% of primary energy
requirement
Exhibit 58: World primary fuel consumption by fuel type (CY12)
Renewable Energy2%
Hydro electricity7%
Nuclear energy4%
Coal30%
Natural gas24%
Oil33%
Source: BP Statistics, ICICIdirect.com Research
In India, coal meets 53% of primary fuel consumption whereas oil
meets 30% of primary fuel consumption
ICICI Securities Ltd | Retail Equity Research Page 26
Reserves World coal reserves as of December 2012 are enough to feed the coal needs for at least another 100 years (reserves to production ratio at 109) wherein Asia Pacific constitutes a healthy ~31%. Major developing economies like China and India constitute 13.3% and 7% of world reserves, respectively.
India has very large resources of coal with proven resources in excess of 110 billion tonnes, majority of which consists of non-coking coal to the extent of ~85%. As of April 2012, total coal resources of India are 293 billion tonne as per the estimates of the Geological Survey of India. Jharkhand, Odisha and Chhattisgarh comprise a massive 70% of the total coal resources of India. Jharkhand leads the race with 27.5% followed by Odisha, which has 24.4% and Chhattisgarh that has 17.4%,
Exhibit 62: World coal statistics (CY12) (unit: MTOE)
Region Production ConsumptionTotal North America 558 468Total S. & Cent. America 62 28Total Europe & Eurasia 469 517Total Middle East 1 10Total Africa 149 98Total Asia Pacific 2607 2609Total World 3845 3730China 1825 1873India 229 298
Source: BP Statistics,ICICIdirect.com Research
Exhibit 60: World coal reserves (million tonne)
Region
Anthracite and
bituminousSub- bituminous
and lignite TotalShare of total (%) R/P ratio
Total North America 112835 132253 245088 28.5 244Total S. & Cent. America 6890 5618 12508 1.5 129Total Europe & Eurasia 92990 211614 304604 35.4 238Total Middle East & Africa 32721 174 32895 3.8 124Total Asia Pacific 159326 106517 265843 30.9 51China 62200 52300 114500 13.3 31India 56100 4500 60600 7.0 100Total World 404762 456176 860938 109
Source: BP Statistics, ICICIdirect.com Research
Exhibit 61: Indian geological resources (million tonnes)
Type of Coal Proved Indicated Inferred Total(A) Coking :- -Prime coking 4614 699 0 5313 -Medium coking 12837 11952 1880 26669 -Semi-coking 482 1003 222 1707Sub-total coking 17933 13654 2102 33689(B) Non-coking:- 99618 128416 30282 258316(C) Tertiary coal 594 99 800 1493Grand Total 118145 142169 33183 293497
Geological resources of coal (in million tonne)
Source: Ministry of Coal, GSI (as on 01/04/2012)
Exhibit 63: World coal production share (CY12) (MT)
Region Production % ShareTotal North America 1002.8 12.8Total S. & Cent. America 97.3 1.2
Total Europe & Eurasia 1281.0 16.3Total Middle East & Africa 265.6 3.4Total Asia Pacific 5218.0 66.3Total World 7864.5 100.0China 3650 46.4India 605.8 7.7
Currently, world coal production surpasses its consumption except
for regions like India, which are still net coal importers
Asia Pacific constitutes the lion’s share of about 66% share in
coal production. India, in particular, contributes 8% of world coal
production
CIL contributes 81%; SCCL contributes 9.5% whereas others
contribute the residual ~9.5%
Exhibit 64: Domestic coal production & imports Particulars FY07 FY08 FY09 FY10 FY11 FY12 FY13CIL 361 380 404 431 431 436 452SCCL 38 41 45 50 51 52 53Others 32 37 45 50 50 52 52Total domestic availability 431 457 493 532 533 540 558Coking coal imports 18 22 21 25 20 32 33Non coking coal imports 25 28 38 49 49 71 105Total imports 43 50 59 73 69 103 138Total availability 474 507 552 605 602 643 695
Source: Ministry of Coal, Crisil, ICICIdirect.com Research
Source: BP Statistics, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 27
Coal India Map Exhibit 65: Coal India : Geography
Source: CIL DHRP, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 28
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively; with strong conviction Buy: Between 10% and 15%/20% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093
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