Coal India’s revenue in Q4FY23 increased by 17% y-o-y and 9% y-o-y, reaching `382 bn, which is consistent with our estimated revenue of `363 bn. The rise in revenue can be attributed to high volumes and realisations. The blended average selling price (ASP) also increased by 13% y-o-y and 2% q-o-q to `1,877/t, with ASP growing y-o-y for all categories. The E-auction ASP soared by 86% y-o-y to ` 4,525/tonne but decreased by 10% q-o-q. The E-auction premium reduced to 192% from an all-time high of 329% in Q2FY23 and 241% in Q3FY23, though it remained above the historical average.
Adjusted Ebitda (net of OBR) for COAL was down by 31% y-o-y and 23% q-o-q, amounting to `86 bn. The decline in Ebitda was due to the higher provisions of `59 bn allocated towards national coal wage agreement (NCWAXI) wage provisions, resulting in employee expenses increasing to `170 bn, exceeding our estimated expense of `135 bn.
Adjusted profit after tax (APAT) of the company fell by 18% y-o-y and 28% q-o-q. The production grew 7% y-o-y and 25% q-o-q to 224mt. COAL exceeded its yearly production target in FY23 and clocked incremental sales of 80mt in a year. In FY23, the removal of over burden removal (OBR) by the company reached record levels of 1,652 million cubic meters, which is a 22% increase compared to the previous year. The 294mcm incremental OBR removal is the highest since inception, and higher OBR removal facilitates faster and higher coal extraction. High OBR removal will help COAL achieve its FY24 production target of 770-780mt.
COAL’s growth roadmap is in synergy with the government’s commitment to bring about a transformative change in the power sector by providing 24×7 power supply to all homes and sets the stage for COAL to achieve strong coal production over the next few years.
COAL has received long-term demand commitments from multiple power plant companies for fuel supply agreements (FSA), which provides the company with better visibility and predictability of its business operations. To meet growing power demand, COAL has pegged 610mt to power plants in FY24E.
E-auction to drive profitability
Though e-auction premiums have cooled off from their highs, they were compensated by higher volumes in Q4FY23. As coal availability to the nonregulated sector (NRS) increases, COAL has an option of placing up to 10% of its total production or 20% of production after fulfilling FSA deliveries under e-auctions. We expect COAL to sell 68-70mt of its volumes via e-auction determined prices in FY24.
Valuation and view
We believe the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term. Underinvestment by developed economies in the last decade has proven expensive, with no alternate sources of Russian NG in sight other than coal. Renewables remain unreliable due to challenges related to availability, costs, storage or safety. The dependence on coal is therefore likely to increase in the near term. The integration of all five different modes of auction into a single e-auction has led to better price discovery for coal. We retain our Buy rating with a target price of `285, valuing the stock at 5x FY24E EV/EBTIDA. COAL remains our top pick in the metals and mining sector.