Coal India (COAL) has introduced evacuation facility charges of Rs 50/t on all coal dispatches, except those through rapid loading arrangement. We estimate this will apply to 80% of COAL’s supplies.
Coal India (COAL) has introduced evacuation facility charges of Rs 50/t on all coal dispatches, except those through rapid loading arrangement. We estimate this will apply to 80% of COAL’s supplies. The charges are effective immediately. The company estimates additional revenue of Rs 800 crore for the remaining period of FY18 and Rs 2,500 crore for full-year FY19. The charges will be reported under other operating income. We were already building in a similar hike, and thus, our estimates are unchanged. Coal’s dispatches grew 5% y-o-y (to 50.7 mt) in November, even as coal-based power generation was flat y-o-y. Coal inventories at the power plant remain low at just 9 days of consumption or 12 mt. Restocking to normative 20-25 days of consumption will aid dispatch growth, even if power generation were to remain weak due to seasonal weather conditions. Premium over the notified price in e-auction increased further to 76%, while volumes increased to 9 mt in October. The premium and volumes both are higher than the past few months, driven by import substitution as prices in the global market have been trending up.
Despite a steep increase in cost on account of the wage hike, we expect adjusted EBITDA CAGR of 15 % to R19,700 crore over FY17-19. Growth in EBITDA is driven by annual volume growth of 7%, operating leverage and other operating income. EPS is expected to increase at a CAGR of 18 % to R20.7/share over FY17-19. At 90 % payout, the dividend yield will be 6 % at CMP. Concerns around grade slippage, e-auction price decline, deceleration in volume growth and wage hikes are now behind. Volume growth is accelerating, which will also drive operating leverage gains. Various cost initiatives like closing of underground mines, VRS and overtime compensation can drive upside to our estimates. The stock trades attractive at 6.8x FY19E EV/EBITDA. The TP is R335/share based on 8x FY19E EV/EBITDA. Buy.