Coal India’s dispatches in August were up 8.9% y-o-y to 40.2 mt, maintaining its healthy high single-digit growth rate. Among the subsidiaries, CCL posted the strongest growth (~20%).
MCL’s growth was ~13% despite disruptions for a few days due to bandh. Dispatches were weak at ECL (down 17%) and WCL (down 2%); both produce high grade coal and are priced close to import prices.
There is a case for price correction in higher-grade (G1 to G4) coal on fall in RB Index, but the overall volumes are just 5% of the total dispatches. YTD dispatches are up 8.2% y-o-y, largely in line with our 9% growth estimate for FY16 (534 mt).
Production growth moderated to 4.8% to 36.2mt in August. Although production growth moderated because of intended destocking, the overburden removal in 1QFY16 was very strong—implying stronger production during rest of the year.
We continue to believe that CIL’s dispatches will rise at a CAGR of 10% to 781m tonne by FY20. In the 1QFY16 analyst meet, the management reiterated its focus on growing production.
CIL’s adjusted Ebitda is likely to grow at a 12.8% CAGR to R38,600 crore by FY20, largely benefiting from operating leverage, transparent pricing for non-power sector and 10% volume CAGR. Based on DCF valuation (WACC of 12.8%), we value the stock at R439— marginally lower than our earlier estimate of R450. The stock is trading at an EV of 6.6x FY17E adjusted Ebitda. Reiterate ‘buy’.