Street concerns on e-auction sales in Q3FY19 were likely offset by 76% y-o-y increase in e-auction realisations that helped e-auction revenues still post a healthy 11% y-o-y growth at Rs 41 bn. Modest volume growth over the last few months will likely be addressed, even as valuations at 6.5X P/E and 5X EV/Ebitda on adjusted earnings offer cushion. Upgrade to Buy (from ADD) with unchanged fair value of Rs 290/share.
Strong earnings growth on the back of improvement in e-auction realisations Coal India reported a healthy 52% y-o-y growth in PAT at Rs 46 bn (KIE Rs 37 bn) aided primarily by healthy growth in blended realisations (+11.7% y-o-y) as well as contribution from evacuation facility charge—the latter resulting in 59% y-o-y growth in other income. Volume growth for the quarter was modest (+1.1% y-o-y) and sales mix inferior with 37% y-o-y decline in e-auction sales. However, lower e-auction volumes were offset by 76% y-o-y growth in e-auction realisation.
We highlight that the bulk of the earnings improvement was price-led on account of (i) higher prices of notified coal (+9% y-o-y), (ii) improvement in e-auction realisations (+76% y-o-y) and (iii) inclusion of evacuation facility charge of Rs 7.7 bn. Incrementally, overall cost inflation remained contained at 7% y-o-y.
Buy-back announced at Rs 235/share for 0.7% of the paid-up capital Coal India approved buy back of 44.7 mn shares (0.72% of paid-up equity share capital) at a price of `235/share which equates to a yield of 0.75%. The offer size of Rs 10.5 bn represents 5.3% of the fully paid-up capital and free reserves of March, 2018.
Improved pricing and attractive valuations
Coal India has had a much improved year with 9MFY19 delivering 100% y-o-y growth in earnings on the back of 18% y-o-y growth in revenue. The continued divestment by the government has made for valuations to be incrementally attractive at 6.5X P/E and 5X EV/Ebitda on adjusted earnings coupled with a 11% dividend yield on FY20e earnings. We have marginally revised our earnings estimates upwards for FY19/FY20e by 10.3/12.4% to factor in higher e-auction realisations.