Production disappointed with 0.3% y-o-y growth; realisations likely to improve on the back of increase in notified prices.
coal India reported modest growth of 4.7% y-o-y in dispatches in February 2018 taking YTD growth to 7%. Production volumes disappointed with 0.3% y-o-y growth. E-auction premiums moderated to 58% though will be supplemented by the evacuation facility charge introduced in December 2017 as well as the revision in notified prices from January 2018. Our rating and target price for Coal India remain suspended as our associate company is playing an advisory role to CIL. Dispatch growth moderates to 4.7% y-o-y in February 2018, production growth flat Coal India reported dispatch growth of 4.7% y-o-y in February 2018 continuing with the moderating trend seen in the previous four months, bringing down YTD growth to 7% (8.2% YTD until November 2017). Production volumes stood at 54.5 mn tons registering weak growth of 0.3% y-o-y in February 2018. Barring MCL, all subsidiaries reported positive growth in dispatch volumes with ECL showing highest growth of 19% y-o-y followed by NCL (+13% y-o-y). BCCL, which struggled on the volume front for the past four months, showed positive growth of 3.9% y-o-y. On the production front, three out of seven subsidiaries reported positive production volume growth with ECL reporting highest growth of 24.7% y-o-y in February 2018.
Auction premiums moderate; alarming increase in number of plants with critical inventory levels E-auction premiums moderated to 58% in January 2018 after having spiked to 74% in December 2017. However, the auction premiums should be seen in the context of the additional evacuation facility charge introduced in December 2017 as well as revision in notified prices of coal in January 2018. Coal inventory days increased to 10 days in February 2018 (from 9 days in January 2018); however, plants with critical/supercritical levels of inventory increased to 51 highlighting a more widespread problem. An alternative measurement of critical plants (below specific trigger levels) put the count at 25. We note that the increase in inventory levels is despite 20% growth being maintained for dispatches of coal to power sector against a modest 5.3% y-o-y growth in coal-based generation in January 2018. Realisations to improve with increase in notified prices Coal India’s earnings, which have been plagued on account of (i) increase in wage revisions and (ii) grade slippages for coal, will likely see an improvement in realisations on the back of increase in notified coal prices as well as evacuation charge of Rs 50/ton (in Dec 2017). We expect blended coal realisations to increase by ~Rs 125/ton (9%) in FY2019e on volumes of 591 mn. Our rating and target price for the stock remain suspended as our associate company is playing an advisory role to CIL.