Q1 PAT fell 23% y-o-y, 15% miss vs. estimates due to lower FSA(fuel supply agreement) ASP (average selling price). We have cut our FY18-19e EPS by 7.6/7.1 %. FSA ASP has been hit by grade reset, but it is likely bottoming out. Offtake growth should also improve, but with scope for further rise in wage cost, earnings growth would be muted unless CIL takes a price hike. This appears unlikely near term. Valuations at 7.7x FY18e Ebitda ex OBR (ex overburden removal) and strong dividend yield should offer support. Maintain Hold.
Q1 Ebitda miss led by lower realisation
Ebitda fell 17 % y-o-y to Rs 35.2 bn, 17% below our estimate, despite reversal in OBR provision. Ebitda ex OBR fell 24% y-o-y (24% miss). ASP (ex incentive) fell 7.7 % q-o-q to Rs 1339/ton, 5% miss due to lower FSA ASP and lower e-auction ASP. Costs ex OBR was 2% higher vs. our estimates, despite lower wage cost due to higher input cost and higher other expenditure.
FSA ASP slips further due to grade reset
Q1 FSA ASP was Rs 1201/ton vs. Rs 1240-1258/ton of underlying FSA ASP (adjusting for grade slippage provision) in Q4. Thus, FSA ASP has dropped further q-o-q, after new grades became effective on April 1, 2017. While we await more colour at the analyst meet, Q1 FSA ASP should largely reflect the full impact of the grade reset and further fall in FSA realisation appears unlikely, in our view. We cut our FSA ASP and forecast FSA ASP of Rs 1208/ton in FY18e and Rs 1232/ ton in FY 19e.
Wage costs lower than expected
Q1 wage cost was Rs 80.7 bn, surprisingly below wage cost run rate of Rs 82-85 bn per quarter (Q2 FY17 onwards) reported in last few quarters. We believe wage provision could edge higher as negotiations proceed. We trim our FY18-19E wage cost estimates by 1.6 % and forecast wage cost of Rs 345 bn in FY18E.
Offtake to grow 7% in FY18e
Coal output fell 4.2% y-o-y, but offtake rose 4 % y-o-y year to date (YTD) (FY18. Coal-based power generation grew 4.9% y-o-y in July, but power plant coal stocks are at two-year lows. This should drive restocking and boost coal offtake in the next few quarters.
We have cut FY18-19e (estimates) EPS (earnings per share) 7.6-7.1 % factoring lower FSA ASP and also as we trim wage costs. Our revised DCF-based price target (PT) is Rs 245.