Coal India Production update: Production and offtake see little growth, coal stocks recover slightly

10-December-2018

Coal India Ltd (CIL) saw very little growth in production and offtake in the month of November 2018. Coal production rose to 52.09mn tonnes (up 1.6% yoy) in November compared to 49.77mn tonnes (up 7.8% yoy) in October 2018. Offtake remained weak, rising to 51.01mn tonnes (up 0.6% yoy) in November 2018 compared to 50mn tonnes (up 3.6% yoy) in October 2018. This brings the production and offtake of CIL for 8MFY19 to 358.33mn tonnes (up 8.8% yoy) and 391.82mn (up 6.5% yoy) respectively.

Coal stock levels as on November 29, 2018 stood at 12.85mn tonnes (8 days of inventory) with 23 plants having critical or super critical levels of inventory. This is an improvement from the end of October 2018, which saw coal stocks at 10.1mn tonnes (6 days of inventory). However, this improvement in coal stock levels has occurred partly due to higher degree of sourcing of imported thermal coal. Import of thermal coal stood higher by 27% yoy in October 2018.

With the end of the monsoon period, coal stock levels have improved. However, power demand still remains high. Power demand for the months of October and November increased by ~5% and 10.6% yoy respectively. Efforts to de-bottleneck the railway transportation networks are ongoing and would help relieve the situation. However, a major improvement in the rail transportation network is only expected after FY21 after the completion of the Eastern and Western Dedicated Freight Corridors.

Coal India is likely to see revenue CAGR of 8.5% over FY18-20E backed by sharp rise in coal production in FY19-20E. EBITDA margins are likely to expand 1,424bps over FY18-20E due to (1) higher levels of production, and (2) firm realisations due to higher offtake from thermal generators. We expect this revenue growth to lead to PAT CAGR of 63.2% over FY18-20E with an EBITDA margin of 25.4% in FY20E. The stock is currently trading at 8.2x FY20E EPS.

CIL holds a dominant market share in coal mining and produces 84% of the nation’s coal output. However, the government allowed private miners to engage in commercial coal mining, in February 2018, thereby ending the monopoly status enjoyed by CIL. The production and offtake targets for CIL in FY19E have been set at 652mn tonnes and 681mn tonnes, respectively. CIL’s production for Q2FY19 stood at 119.6mn tonnes (up ~6% yoy), while offtake for the same period stood at 137.4mn tonnes (up ~4% yoy). Achievement of offtake targets for 1HFY19 stood at ~85%.

Source: INDIA INFOLINE

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