RESULTS REVIEW 2QFY18 13 NOV 2017

Coal India
BUY
INDUSTRY MINING Wage Hike Drag
CMP (as on 13 Nov 17) Rs 275
Coal Indias (CIL) 2QFY18 results were below steep discounts to alternatives (we build in ~6% hike
Target Price Rs 305 estimates (EBITDA at Rs 6.19bn vs est 14.65bn, in FY19 vs 2QFY18 base). At 7.4/6.5x FY19/20
Nifty 10,225 2x/(77.7% YoY/QoQ). The miss was mainly driven by EV/EBITDA, the upside is limited. Maintain BUY with
Sensex 33,034 higher employee expenses (Rs 91.55bn, 8.9/13.4x a TP of Rs 305 (7.5x Sep-19 EV/EBITDA).
KEY STOCK DATA
YoY/QoQ), which also included a provision of Rs Highlights of the quarter
23bn towards wage settlement, finalized in October
Bloomberg COAL IN
2017. Contractual expense, the other key cost head, FSA volumes were up 12.5% YoY (10.46 mT), while
No. of Shares (mn) 6,207 was sharply lower (Rs25.52bn, 7.9/(17.6)% realisations improved ~1.9% QoQ, indicating a likely
bottoming out of FSA realisations. E-auction volumes
MCap (Rs bn) / ($ mn) 1,707/26,075 YoY/QoQ). This might indicate lower pre-stripping
(23.3 mT, 22.1% YoY, 18% of total volume) continue to
6m avg traded value (Rs mn) 1,215 and is likely a one-off.
strengthen, and pricing also improved (Rs 1,614/t,
STOCK PERFORMANCE (%) CIL continues to clock strong volume growth 19.7/1.8% YoY/QoQ). CILs operational costs were
52 Week high / low Rs 332 / 234 (2QFY18/Oct 17 Offtake: 13.6/12.3% YoY). This is down ~3.2% YoY, despite higher employee cost
likely to continue till the coal stocks at power plants provisioning. This may have been driven by lower
3M 6M 12M contractual expenses and may be a one-off.
stabilize at required levels (Normative: 21 days,
Absolute (%) 16.6 (0.6) (15.2) Actual 6 days on 9 November 2017). Higher Near-term outlook: Volume growth is likely to remain
Relative (%) 10.7 (10.0) (38.3) alternative fuel prices will continue to help e-Auction high, due to aforementioned coal shortage. With coal
SHAREHOLDING PATTERN (%) realisations (2QFY18 Premium vs FSA: 32%). CIL may wage agreement in the bag, CIL is likely to implement
Promoters 78.86
also take FSA price hikes in near future given the price hikes to offset the cost inflation.

FIs & Local MFs 11.89

FPIs 5.58
Financial Summary (Consolidated)
(Rs mn) 2QFY18 2QFY17 YoY(%) 1QFY18 QoQ(%) FY16 FY17 FY18E FY19E FY20E
Public & Others 3.67
Net Sales 174,785 156,451 11.7 184,043 (5.0) 755,183 754,666 791,256 897,098 959,276
Source : BSE EBITDA 6,190 3,176 94.9 26,578 (76.7) 215,229 149,121 124,913 201,032 228,129
Ankur Kulshrestha, CFA PAT 3,689 6,002 (38.5) 23,517 (84.3) 142,681 92,678 73,300 118,314 131,675
ankur.kulshrestha@hdfcsec.com Diluted EPS (Rs) 0.59 0.95 (38.1) 3.75 (84.3) 22.6 14.8 11.8 19.1 21.2
+91-22-6171 7346 P/E (x) 12.2 18.6 23.3 14.4 13.0
EV / EBITDA (x) 6.0 9.4 11.3 7.1 6.3
Meera Midha
RoE (%) 37.5 31.0 30.4 53.2 65.3
meera.midha@hdfcsec.com
Source: Company, HDFC sec Inst Research
+91-22-6639 3033
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 COAL INDIA : RESULTS REVIEW 2QFY18

Petcoke and imported coal Competitiveness vs imported coal (high grade) Competitiveness vs imported coal (lower grade)
are now much costlier vs Rs/mn cal Petcoke Domestic Rs/mn cal Petcoke Domestic
Indonesia - 4200 GAR
comparable grades of COAL SA - RB1 (CFR, India)
1.40 1.10 Domestic coal (CIL, G11)
Domestic coal (CIL, G4) Lignite (GMDC, Mata-No-Madh)
1.20
0.90
1.00
0.70
0.80
0.50
0.60

0.40 0.30

Sep-15

Sep-16

Sep-17

Feb-16

Feb-17
Jan-16

Jan-17
Mar-15

Mar-16

Mar-17

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17
Jul-15

Jul-16

Jul-17

Aug-15

Aug-16

Aug-17
Oct-15

Oct-16
May-15

May-16

May-17

Apr-15

Apr-16

Apr-17
Nov-15

Nov-16
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Pricing includes respective levies

Subsidiary-wise production and off-take

YTD
Subsidiary Production Growth Off-take Growth
NCL and SECL continue to (mT) (%) (mT) (%)
deliver strong growth. Due to ECL 19.87 1.4% 21.64 -7.2%
recent coking coal price hikes, BCCL 16.04 -17.7% 18.17 -5.0%
both ECL and BCCL should see CCL 25.54 -9.2% 37.19 22.4%
strong numbers. NCL 50.76 18.1% 53.33 19.4%
WCL 18.75 7.3% 26.06 34.0%
SECL 73.96 4.4% 84.32 14.7%
MCL 72.99 -2.3% 76.26 -5.9%
NEC 0.17 38.4% 0.35 -5.4%
CIL 278.08 1.7% 317.32 8.7%
Source: Company, HDFC sec Inst Research

Page | 2
 COAL INDIA : RESULTS REVIEW 2QFY18

Employee costs includes Quarterly Financials Snapshot

(Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
provision of Rs 23bn towards
Net Sales 174,785 156,451 11.7 184,043 (5.0)
wage hikes effective from
July1, 2016 Employee costs 91,550 84,069 8.9 80,716 13.4
Stores and spares 14,461 14,892 (2.9) 14,806 (2.3)
Contractual expense, the Contractual expenses 25,525 23,666 7.9 30,980 (17.6)
Other Operating Expenses 20,771 23,479 (11.5) 22,148 (6.2)
other key cost head, was
Changes to Inventory 16,289 7,169 127.2 8,817 84.8
sharply lower (Rs25.52bn,
EBITDA 6,190 3,176 94.9 26,578 (76.7)
7.9/ (17.6) % YoY/QoQ). This
% Margin 3.5 2.0 14.4
might indicate lower pre-
Other Operating Income 6,698 5,675 7,574
stripping and is likely a one-
Other Income/(expense) 6,107 14,125 12,066
off.
Interest Cost 1,007 970 1,210
Depreciation 7,146 6,921 6,699
OB Removal adjustment 578 1,425 (1,069)
PBT 10,264 13,661 (24.9) 39,377 (73.9)
Tax 6,576 7,660 15,860
APAT 3,689 6,002 (38.5) 23,517 (84.3)
E/o (adj for tax) 0 0 0
RPAT 3,689 6,002 (38.5) 23,517 (84.3)
APAT + OBR 4,267 7,426 (42.5) 22,449 (81.0)
Source: Company, HDFC sec Inst Research

Page | 3
 COAL INDIA : RESULTS REVIEW 2QFY18

Per Tonne Analysis

2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Production (mT) 113.1 104.4 8.3 118.8 (4.8)
Sales (mT) 131.6 115.9 13.6 137.4 (4.2)
FSA 104.6 93.0 12.5 107.1 (2.4)
e-Auction 23.3 19.1 22.1 27.3 (14.6)
% of sales 18% 16% 123.6 20% (216.6)
% of total volumes 17.7 16.4 19.9
Washed coal 2.9 3.1 (6.9) 2.7 5.2
Ending inventory (mn T) 36.4 43.1 (15.7) 54.9 (33.8)
Realisations (Rs/T) 1,328 1,350 (1.7) 1,340 (0.9)
FSA 1,224 1,292 (5.3) 1,201 1.9
e-Auction 1,614 1,348 19.7 1,586 1.8
Premium over FSAs 32% 4% 2,752.2 32% (18.3)
Washed coal 2,582 2,784 (7.2) 3,649 (29.2)
EBITDA (Rs/t) 47 27 71.6 193 (75.7)
Source: Company, HDFC sec Inst Research

Key Assumptions
Year Ending March FY15 FY16 FY17 FY18E FY19E FY20E
Production (mT) 494.2 538.8 554.1 569.8 629.0 694.8
Sales (mT) 488.3 533.5 541.3 583.8 624.1 667.1
FSA 426.0 447.7 429.8 464.1 496.6 531.3
E-auction 46.9 66.3 94.2 101.9 109.0 116.6
Washed Coal + Other Byproducts 16.1 15.4 19.4 17.3 17.9 18.5
Ending Inventory (mn T) 59.2 64.6 77.4 63.3 68.3 96.0
Realisations (Rs/T) 1,475 1,418 1,397 1,355 1,438 1,438
FSA 1,327 1,311 1,301 1,223 1,291 1,291
E-auction 2,450 1,858 1,536 1,650 1,807 1,807
Washed Coal 2,591 2,393 3,023 3,116 3,190 3,268
Employee Costs/t 612 565 619 603 566 531
Outsourcing Cost/t 174 209 227 235 259 286
Other Costs/t 298 285 323 361 351 342
EBITDA/T (Rs) 390 357 225 156 262 278
Source: Company, HDFC sec Inst Research

Page | 4
 COAL INDIA : RESULTS REVIEW 2QFY18

Changes In Estimates
Old New % change
Marginal changes to our
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
earnings estimates Sales volumes (mT) 569.8 629.0 694.8 583.8 624.1 667.1 2.5 (0.8) (4.0)
Realisations (Rs/t) 1,346 1,427 1,428 1,355 1,438 1,438 0.7 0.7 0.7
Revenues (Rs mn) 771,524 874,673 935,281 791,256 897,098 959,276 2.6 2.6 2.6
EBITDA (Rs mn) 130,972 201,896 224,915 124,913 201,032 228,129 (4.6) (0.4) 1.4
PAT (Rs mn) 77,445 119,068 129,645 73,300 118,314 131,675 (5.4) (0.6) 1.6

Off-take Growth Led By Power Plant Restocking e-Auction Premium Stable at 32% of FSA Prices
Coal production Off take Blended realisations FSA E-auction
190.0 mnT Rs/t
3,500
170.0
3,000
150.0
2,500
130.0
2,000
110.0
90.0 1,500

70.0 1,000
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Strong Growth Across Categories Wage Hike Led Cost Inflation
FSA E-Auction Washed coal Others
Employee costs/t Contractual exp/t
Rs/t
145

142
mnT 1,800

138
137
134

133

131
Other costs/t EBITDA/t
129
128

150
126
125
125
123

122

120
117

116
115
113

110
109
101

125 1,350
100
75 900

50
450
25
- -
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 5
 COAL INDIA : RESULTS REVIEW 2QFY18

Income Statement Balance Sheet

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E
Net Revenues 755,183 754,666 791,256 897,098 959,276 SOURCES OF FUNDS
Growth % 4.9 (0.1) 4.8 13.4 6.9 Share Capital 63,164 62,074 62,074 62,074 62,074
Employee Expenses 301,268 335,143 351,905 353,172 354,443 Reserves 285,168 183,194 168,534 144,871 127,577
Contractual expenses 111,284 123,041 137,160 161,640 190,922 Total Shareholders Funds 348,332 245,268 230,608 206,945 189,651
Materials expenses 55,956 57,253 87,793 84,607 80,668 Minority Interest 1,048 3,459 3,459 3,459 3,459
Other operating expenses 96,340 117,649 123,149 134,429 147,519 Long Term Debt 2,631 2,948 2,948 2,948 2,948
Operating profits 190,336 121,581 91,249 163,251 185,724 Short Term Debt 9,357 27,197 27,197 27,197 27,197
Operating Profit Margin (%) 25.2 16.1 11.5 18.2 19.4 Total Debt 11,988 30,145 30,145 30,145 30,145
Other operating income 24,893 27,540 33,663 37,781 42,406 Deferred Taxes (20,445) (27,328) (27,328) (27,328) (27,328)
EBITDA 215,229 149,121 124,913 201,032 228,129 Long Term Provisions & Others 462,730 486,794 525,668 564,543 603,418
EBITDA % 28.5 19.8 15.8 22.4 23.8 TOTAL SOURCES OF FUNDS 803,652 738,338 762,553 777,765 799,345
EBITDA Growth % 1.5 (30.7) (16.2) 60.9 13.5 APPLICATION OF FUNDS
Depreciation 28,259 29,101 35,257 42,680 48,961 Net Block 220,825 238,077 267,820 290,140 286,179
Overburden removal CWIP 62,593 106,604 126,604 126,604 146,604
28,114 26,722 20,042 20,042 20,042
adjustment Investments 74 107 107 107 107
EBIT 158,856 93,298 69,614 138,311 159,127 LT Loans and Advances 89,813 95,560 95,560 95,560 95,560
Other Income (Incl EO Items) 59,404 55,156 40,789 39,278 38,403 Total Non-current Assets 373,305 440,347 490,090 512,410 528,449
Interest 3,862 4,117 1,000 1,000 1,000 Cash & Equivalents 424,235 336,051 321,798 302,462 302,363
PBT 214,398 144,337 109,403 176,589 196,530 Inventories 75,692 89,453 75,874 86,023 91,985
Tax (Incl Deferred Tax) 71,719 51,660 36,103 58,274 64,855 Debtors 114,476 107,359 108,391 115,517 118,267
RPAT 142,679 92,678 73,300 118,314 131,675 Other Current Assets 76,158 85,622 85,531 85,531 85,531
EO Loss/Profit (Net of Tax) (2) - - - - Total Current Assets 690,561 618,484 591,594 589,533 598,147
APAT 142,681 92,678 73,300 118,314 131,675 Creditors 32,972 39,002 37,732 42,779 45,744
APAT Growth (%) 4.0 (35.0) (20.9) 61.4 11.3 Other Current Liabilities &
227,234 281,491 281,491 281,491 281,491
EPS 22.59 14.78 11.81 19.06 21.21 Provns
EPS Growth (%) 3.9 (34.6) (20.1) 61.4 11.3 Total Current Liabilities 260,206 320,493 319,223 324,270 327,235
Source: Company, HDFC sec Inst Research Net Current Assets 430,355 297,991 272,371 265,263 270,912
TOTAL APPLICATION OF FUNDS 803,652 738,338 762,553 777,765 799,345
Source: Company, HDFC sec Inst Research

Page | 6
 COAL INDIA : RESULTS REVIEW 2QFY18

Cash Flow Key Ratios

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
Reported PBT 214,398 144,337 109,403 176,589 196,530 PROFITABILITY (%)
Non-operating & EO items (50,165) (37,435) (31,548) (30,037) (29,162) EBITDA Margin 28.5 19.8 15.8 22.4 23.8
Interest expenses 3,862 4,117 1,000 1,000 1,000 APAT Margin 18.9 12.3 9.3 13.2 13.7
Depreciation 63,346 69,506 74,132 81,555 87,836 RoE 37.5 31.0 30.4 53.2 65.3
Working Capital Change (21,772) 59,792 11,276 (12,228) (5,747) RoIC N/M N/M N/M N/M N/M
Tax Paid (78,754) (89,427) (36,103) (58,274) (64,855) RoCE 34.1 29.3 27.1 49.9 61.7
OPERATING CASH FLOW ( a ) 130,915 150,890 128,159 158,605 185,601 EFFICIENCY
Capex (90,384) (85,000) (85,000) (65,000) (65,000) Tax Rate (%) 33.5 35.8 33.0 33.0 33.0
Free cash flow (FCF) 40,531 65,890 43,159 93,605 120,601 Asset Turnover (x) 1.3 1.1 1.1 1.2 1.2
Investments (33) 0 0 0 107 Inventory (days) 33 40 35 35 35
Non-operating Income 50,165 37,435 31,548 30,037 29,162 Debtors (days) 48 54 50 47 45
INVESTING CASH FLOW ( b ) (40,252) (47,565) (53,452) (34,963) (35,731) Payables (days) 15 17 17 17 17
Debt Issuance/(Repaid) 29,410 (7,612) 0 0 0 Cash Conversion Cycle (days) 66 76 68 65 63
Interest expenses (3,862) (4,117) (1,000) (1,000) (1,000) Debt/EBITDA (x) N/M N/M N/M N/M N/M
FCFE 116,243 91,596 73,707 122,641 148,763 Net D/E N/M N/M N/M N/M N/M
Share Capital Issuance 0 (47,003) 0 0 0 Interest Coverage 55.7 36.2 124.9 201.0 228.1
Dividend (207,407) (139,659) (87,960) (141,977) (148,969) PER SHARE DATA
FINANCING CASH FLOW ( c ) (181,859) (198,391) (88,960) (142,977) (149,969) EPS (Rs/sh) 22.6 14.8 11.8 19.1 21.2
NET CASH FLOW (a+b+c) (91,196) (95,066) (14,253) (19,336) (99) CEPS (Rs/sh) 31.5 23.7 20.7 29.2 32.3
EO Items / Others 849 6,882 DPS (Rs/sh) 27.4 18.8 11.8 19.1 20.0
Closing Cash & Equivalents 424,234 336,051 321,798 302,462 302,363 BV (Rs/sh) 53.7 41.2 38.8 35.0 32.2
Source: Company, HDFC sec Inst Research VALUATION
P/E 12.2 18.6 23.3 14.4 13.0
P/BV 5.1 6.7 7.1 7.9 8.5
EV/EBITDA 6.0 9.4 11.3 7.1 6.3
OCF/EV (%) 10.1 10.8 9.1 11.1 12.9
FCF/EV (%) 3.1 4.7 3.1 6.5 8.4
FCFE/Market cap (%) 6.8 5.4 4.3 7.2 8.7
Dividend Yield (%) 10.0 6.8 4.3 6.9 7.3
Source: Company, HDFC sec Inst Research

Page | 7
 COAL INDIA : RESULTS REVIEW 2QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
Coal India TP 14-Dec-16 306 BUY 341
400
380
13-Feb-17 325 BUY 369
360 8-Jul-17 251 BUY 320
340 22-Aug-17 238 BUY 300
320 6-Oct-17 273 BUY 300
300 13-Nov-17 275 BUY 305
280
260
240
220 Rating Definitions
200
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Apr-17
Feb-17

Sep-17
Jun-17

Jul-17
Mar-17
Dec-16

Oct-17
Aug-17
Nov-16

Jan-17

Nov-17
May-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8
 COAL INDIA : RESULTS REVIEW 2QFY18

Disclosure:
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HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF
C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193

Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

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 COAL INDIA : RESULTS REVIEW 2QFY18

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

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