Stock corner: ‘Buy’ Coal India, FSA realisation drove performance in Q2FY20

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Updated: November 18, 2019 2:03:35 AM

Going ahead, we expect CIL’s earnings to rise as product mix shift towards non-power customers is likely to keep FSA realisation at the current level and volume is likely to expand at MCL & SECL.

Stock corner, Coal India, FSA, performance, Coal india ltd, coal india share, coal india limited, coal india stock price, coal india news, coal india nse, coal india bseDespite volume woes, we remain upbeat on FSA realisation, which underpinned CIL’s Q1FY20 outperformance.

Coal India (CIL) posted higher-than-consensus Q2FY20 Ebitda of Rs 36.1 bn (down 8% y-o-y). Key highlights: (i) best-ever FSA realisation owing to higher supply to non-power consumers & grade control; (ii) while e-auction volume fell 12% y-o-y, realisation slid 22% y-o-y; and (iii) receivable jumped 39% to Rs 76.4 bn compared to March 2019 level. Going ahead, we expect CIL to sustain the good performance as: (a) FSA realisation is expected to sustain at the current level owing to change in product mix; and (b) imminent pick-up in volumes. Taking cognisance of Q2FY20 performance, we raise FY20/21e EPS by 4%/3%. Maintain Buy with revised TP of Rs 235 (Rs 227 earlier). The stock is trading at 7.1x FY21e EPS.

FSA realisation uptick a major positive
Despite volume woes, we remain upbeat on FSA realisation, which underpinned CIL’s Q1FY20 outperformance. Key highlights: (i) FSA realisation at Rs 1,438 (up 10% y-o-y) is the highest-ever on sharpening focus on non-power consumers; (ii) e-auction premium fell due to 40.4% (lowest since Q2FY18) due to lower international coal prices & an uptick in FSA realisation; (iii) cash & bank balance stood at Rs 370 bn owing to lower tax rate & inventory liquidation; and (iv) receivable grew 39% compared to March 2019 level to Rs 76.4 bn owing to dispute with a major customer and outstanding with certain state-owned entities.

Going ahead, we expect CIL’s earnings to rise as product mix shift towards non-power customers is likely to keep FSA realisation at the current level and volume is likely to expand at MCL & SECL.

Capex likely to be back-ended; expect healthy dividend
Considering H1FY20 capex of ~Rs 20 bn, we believe bulk of the spending will be in H2FY20. In our view, while capex towards equipment is likely to be incurred, the one for land acquisition may be slightly delayed. On the other hand, cash balance of Rs 370 bn will enable CIL to give healthy dividend in line with recent past at Rs 20/share.

Outlook: Value play
Despite weak e-auction realisation and volume woes, we find CIL’s core driver FSA realisation quite strong. Given the robust cash balance we see better probability of CIL giving high dividend in FY20. Taking cognisance of Q2FY20 performance, we tweak FY20/21e EPS up 4%/3%. We maintain ‘BUY/SP’ with TP of Rs 235 on FY21e EPS.

 

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