Covid-19 to cast a shadow on FY21; FY21/22e EPS cut by 10/16%; ‘Buy’ retained as valuations are inexpensive
Coal India reported flat sales (164 mn tons) for Q4FY20 to end the year with a 4.3% y-o-y decline in dispatch volumes at 582 mn tons resulting in net income declining 4.4% y-o-y to Rs 167 bn in FY2020. A 15% decline in e-auction revenues as well as lower overall coal demand on account of the Covid-19 outbreak will likely weigh on the earnings trajectory in FY2021e. Maintain Buy and revise fair value to Rs 215/share (from Rs 230/share previously) based on March 2022e earnings, noting inexpensive valuations.
Flat volumes and lower e-auction revenues continue to weigh on earnings
CIL reported revenues of Rs 256 bn (-4% y-o-y, +19% q-o-q), Ebitda of Rs 47.5 bn (-25% y-o-y, +42% q-o-q) and PAT of Rs 46.3 bn (-23% y-o-y, +18% q-o-q). Lower-than-estimated Ebitda was largely on account of (i) higher CSR expenditure at Rs 4.3 bn (+50% y-o-y); (ii) increase in contractual expenses to Rs 45 bn (+18% y-o-y); and (iii) higher provision for over-burden removal (+26% y-o-y). Blended realisation declined 5% y-o-y to Rs 1,532/ton as increase in raw coal realisation to Rs1,446/ton (+1.5% y-o-y) was offset by reduced revenue contribution from e-auction (-3.8% y-o-y) and washed coal (-13% y-o-y). Operationally, production at 214 mn tons (+10% y-o-y) and sales at 164 mn tons (flat y-o-y) had previously been reported, and were impacted by the shut-down towards the end of March 2020. Earnings disappointment in Q4FY20 was attributable to higher effective tax rate of 38%.
For the full year FY2020, the company reported revenues of Rs 894 bn (4% y-o-y), Ebitda of Rs 152 bn (-17% y-o-y) and PAT of Rs 167 bn (-4% y-o-y) even as blended realisation remained flat at Rs 1,536/ton. Interest costs for the year increased to Rs 5 bn (+83% y-o-y) as gross debt increased to Rs 64 bn from Rs 22 bn, a year ago.
Increase in working capital keeps OCF in check
Increase in trade receivables to Rs 144 bn (from Rs 55.8 bn in FY2019) led to increase in working capital, resulting in lower operating cash flows at Rs 41.6 bn in FY2020, a sharp decline from Rs 163.6 bn in FY2019. We expect some of the receivables build-up to be liquidated in FY2021e owing to the liquidity package offered to discoms. Capital expenditure for CIL also remained muted at Rs 56 bn compared to Rs 70 bn in FY2019.
Stay positive, with FV of Rs 215/share
CIL remains attractively valued at 4XP/E and 4X EV/Ebitda on adjusted earnings for FY2022e. We have revised our earnings for FY2021e/2022e downwards by 10% and 16% to factor in lower e-auction prices in FY2021e as well as the revision in raw coal prices in FY2022e. Maintain Buy.