5MFY19 production/offtake rose 12/9.5% y-o-y; implied run-rate for meeting FY19F targets seems achievable
At 38.8mt, Coal India’s (CIL’s) production in August rose 3.2% y-o-y (vs. 14% y-o-y growth during April-July), and at 45.2mt, offtake in August was up 3.5% y-o-y (vs. 11% y-o-y growth during April-July). In our view, the tepid y-o-y growth in August can partially be attributed to a base effect, which turned adverse after being favourable during the April-July period. For 5MFY19 (April-August), production was up 12% y-o-y whereas offtake was up 9.5% y-o-y.
Production growth across CIL’s coal-producing subsidiaries in August was a mixed bag — robust y-o-y growth at ECL and SECL, but a y-o-y decline at BCCL and MCL. Most of CIL’s coal-producing subsidiaries reported a fairly healthy offtake growth in August; the exceptions were CCL (-12% y-o-y) and BCCL (-5% y-o-y).
CIL liquidated 6.4mt of inventory in August (vs. 6.4mt in Aug-2017) taking 5MFY19 inventory liquidation to 30.7mt vs 32.3mt in 5MFY18. As of August, coal inventory was 25.9mt (vs 37.1mt as of Aug-2017).
On average, power plants had 10 days of coal inventory as of 30-August (down from 11 days as of July 2018); total quantum of coal stock was down from 16mt as of end-July to 14.7mt as of end-August.
Implied run-rate to meet our FY19F offtake target is 1.8mt/day
For FY19F, our forecast production/offtake at 616mt/626.5mt implies an 8.6%/8% y-o-y growth over FY18 output. The implied required run-rate from September onwards to meet our FY19 production/offtake target is 1.7mt/day (+6.8% y-o-y) and 1.8mt/day (+7% y-o-y) respectively, which in our view seems achievable. In the context of CIL’s offtake target of 630mt for FY19, the implied runrate in the remaining 7MFY19 to the same is 1.81mt/day, translating to an 8% y-o-y growth.
On our FY20F adjusted earnings (adding back OB removal provisioning to EPS and Ebitda), the stock trades at 8.2x P/E (EPS: `30.4) and 4.8x EV/Ebitda (9.4x P/E and 5.2x EV/Ebitda on reported earnings); on our FY19F dividend of `23/share, the stock offers a yield of 8%. We maintain our Buy rating on the stock.