Improvement in eauction premiums as well as a more healthy 9.6% yoy growth in dispatches in August 2020, lend hope for an improved earnings profile from hereon.
Weak on expected lines. Coal India reported weak earnings in Q1FY21 on the back of 21% yoy decline in volumes, and aggravated by 6.7% yoy decline in blended realisations. Reversal of the overburden provision of Rs 2.5 bn salvaged earnings to some extent resulting in Ebitda decline of 68% yoy to Rs 15.7 bn. Improvement in eauction premiums as well as a more healthy 9.6% yoy growth in dispatches in August 2020, lend hope for an improved earnings profile from hereon. Maintain BUY with revised fair value of Rs 195/share (from Rs 215/share earlier).
Net sales at Rs 13.8 bn declined 34% yoy (KIE: Rs 19.2 bn) due to lower commodity prices (aluminum: -16% yoy; alumina: -33% yoy). Covid-19 impacted volumes at both aluminum and alumina divisions. Ebitda at Rs 1.3 bn declined 40% yoy (KIE: Rs 284 mn) due to high operating leverage partly offset by inventory build-up of Rs 4.4 mn. Net income of Rs 166 mn was down 83% yoy and 84% qoq on lower other income.
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Segmental performance. Alumina witnessed 12% yoy lower volumes; however, Ebitda at Rs 916 mn (US$55/ton, -33% qoq) declined 53% yoy mainly led by 24% yoy lower alumina realisation. We estimate aluminum sales volumes of 0.07 mn tons, down 31% yoy due to Covid-19 versus production of 0.1 mn tons leading to a sharp inventory build-up. Ebitda of Rs 374 mn (+US$69/ton versus a US$40/ton loss in 4QFY20) was led by 16% yoy lower realisation and offset by 19% yoy lower costs (coal and carbon) and inventory build-up.
We see both alumina and aluminum markets in significant surplus and downside risks to recent liquidity-led price buoyancy. Aluminum prices have rallied by 20% YTD FY2021E led by recovery in the global economy, resilient Chinese demand, and a weaker US dollar.