Coal India reported a volume decline in December 2018 even as four out of seven subsidiaries reported a positive volume growth.
Coal India reported a 1.3% y-o-y decline in dispatches in December 2018, bringing down the YTD growth to 5.5%, ahead of our revised estimate of 4% for FY19. E-auction premiums strengthened to 111% premium over notified prices in November 2018 although should be seen in the context of historically low sales. Maintain ADD rating with a revised fair value of `290/share (from `320), as we factor lower e-auction sales and consequent moderation in volume growth.
Coal India reported a volume decline in December 2018 even as four out of seven subsidiaries reported a positive volume growth. We highlight dispatch volume growth remained weak in November 2018 as well at 0.7% y-o-y, bringing down the Q3FY19 growth to just 1% y-o-y. Production volume growth too remained negative at 0.9% y-o-y in December 2018. Overall 9MFY18 performance now stands reduced to a 5.5% y-o-y growth in dispatches and a 7.4% y-o-y growth in production volumes. Among subsidiaries, WCL and ECL showed the highest dispatch growth of 6.1% and 5.9% y-o-y, respectively, followed by NCL (+2.8% y-o-y). On the production front, four subsidiaries reported volume growth with WCL reporting highest growth of 19% y-o-y followed by NCL at 18% y-o-y in December 2018.
E-auction premiums are still well above those seen in FY18, although should be seen in conjunction with a sharp drop in spot auctions. We note that e-auction sales were already down 24% y-o-y in H1FY19, although overall e-auction revenues were growing by 22% y-o-y on the back of a 60% y-o-y growth in e-auction realisations. Coal inventory improved to 10 days in December 2018, compared to lower levels seen in October and November 2018. Plants with critical inventories in West stand reduced to 5 from 12 seen in November 2018. East has no plants with critical inventory while North and South have three and two plants each.
Coal India has demonstrated a strong performance in H1FY19 delivering a 153% y-o-y growth in earnings on the back of a 21% y-o-y growth in revenue. We expect the earnings momentum to continue on the back of a double-digit growth in realisations (11% yoy in 1HFY19) and healthy volume growth (5.5% yoy till 9MFY18). However, moderate volume growth in 3QFY19 coupled with loss of e-auction sales have led to 6.4-8% downward revision in earnings between FY19E and FY21E.