RESULTS REVIEW 3QFY17 13 FEB 2017

Coal India
BUY
INDUSTRY MINING Back to business as usual
CMP (as on 10 Feb 2017) Rs 325
Coal Indias (COALs) 3QFY17 results beat estimates expectations. We maintain BUY with a TP of Rs 369
Target Price Rs 369 (EBITDA at Rs 39.6bn vs est 33.7 bn, -20% YoY), as e- (7.0x FY19 EV/EBITDA)
Nifty 8,794 auction volumes and prices were ahead of forecasts.
Sensex 28,334 E-auction volumes constituted 18% of the mix (vs Highlights of the quarter
13% est, 671 bps YoY, 126 bps QoQ), while premiums
KEY STOCK DATA
were higher at 21% (vs 15% in 2QFY17, 46% in
FSA volumes were down 3.1% YoY (147.8 mT), while
Bloomberg COAL IN realisations were flat despite price hikes in May, This
3QFY16). In the demonetisation quarter,
No. of Shares (mn) 6,207
indicates continuing grade slippages. CIL continues to
improvements were largely due to higher provide for wage cost hikes at ~10% as implied in the
MCap (Rs bn) / ($ mn) 2,014/30,137 petcoke/imported coal prices. numbers (given the overall expectation of a 24% hike,
6m avg traded value (Rs mn) 1,174 Of the two legs of our bullish hypothesis on COAL, it will be a big positive if this is the final outcome).
STOCK PERFORMANCE (%) higher pricing of alternatives has begun playing out, Apart from provisions, opex remained flattish YoY.
as both petcoke (2x from bottom, November 2015)
52 Week high / low Rs 350 / 272 Near-term outlook: As we enter the peak quarter,
and imported coal (up 60% from bottom, May 2016) COAL has already hiked the price of its coking coal by
3M 6M 12M
pricing has improved. However, power demand ~20%, post the 3x run-up in global coking coal prices
Absolute (%) (2.6) (4.0) 3.4 growth, the second leg, still remains indifferent (they are still up 1.8x from the base). Given rebounding
Relative (%) (5.6) (6.0) (15.8) (5.4% YTD till January). We expect this to improve volumes (6.3% YoY growth in January), 4QFY17 should
SHAREHOLDING PATTERN (%) once overall economic growth, which has been build on 3Q. We believe e-auction prices continue to
sluggish, takes off. With its built-in operational remain at the levels seen in 3Q, and this should further
Promoters 79.78
leverage, COALs numbers can largely outperform aid realisations.
FIs & Local MFs 10.84
FIIs 6.92 Financial Summary (Consolidated)
Public & Others 2.46 (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 197,045 189,715 3.9 156,451 25.9 720,146 756,443 761,555 879,209 971,920
Source : BSE
EBITDA 39,567 49,337 (19.8) 3,176 1,145.8 212,143 211,517 166,984 220,535 267,254
Ankur Kulshrestha, CFA PAT 28,841 36,845 (21.7) 6,002 380.5 137,216 142,329 109,278 139,813 170,986
ankur.kulshrestha@hdfcsec.com Diluted EPS (Rs) 4.60 5.83 (21.2) 0.96 380.5 21.7 22.6 17.4 22.5 27.5
+91-22-6171 7346 P/E (x) 14.9 14.4 18.6 14.4 11.8
Sarfaraz Singh
EV / EBITDA (x) 7.9 7.6 9.8 7.3 5.9
sarfaraz.singh@hdfcsec.com RoE (%) 33.2 38.4 36.3 54.1 64.6
+91-22-6171 7331 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 COAL INDIA : RESULTS REVIEW 3QFY17

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
comparable grades of COAL SA - RB1 (CFR, India) Indonesia - 4200 GAR
Domestic coal (CIL, G11)
1.30 Domestic coal (CIL, G4) 1.10 Lignite (GMDC, Mata-No-Madh)
1.20
1.10 0.90
1.00
0.90
0.70
0.80
0.70
0.60 0.50
0.50
0.40 0.30

Sep-15

Feb-16

Sep-16
Jan-16

Jan-17
Mar-15

Mar-16
Jun-15

Dec-15

Jun-16

Dec-16
Jul-15
Aug-15

Jul-16
Aug-16
Oct-15

Oct-16
Apr-15
May-15

Apr-16
May-16
Nov-15

Nov-16
Sep-15

Feb-16

Sep-16
Jan-16

Jan-17
Mar-15

Mar-16
Jun-15

Dec-15

Jun-16

Dec-16
Jul-15
Aug-15

Jul-16
Aug-16
Oct-15

Oct-16
Apr-15
May-15

Apr-16
May-16
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

January YTD
NCL and ECL continue to
Subsidiary Production Growth Off-take Growth Production Growth Off-take Growth
deliver strong growth. Due to
(mT) (%) (mT) (%) (mT) (%) (mT) (%)
recent coking coal price hikes, ECL 3.45 (24.2) 3.41 (11.9) 32.03 4.5 35.09 13.8
both ECL and BCCL should see BCCL 3.64 12.3 3.43 10.6 29.42 2.7 28.91 (2.7)
strong numbers. CCL 7.33 27.9 6.41 31.4 48.19 2.1 48.54 (1.4)
NCL 8.39 5.0 8.01 8.1 67.60 4.9 68.32 5.8
WCL 5.01 11.8 4.21 12.9 31.76 (8.7) 31.24 (11.3)
SECL 14.14 7.8 13.01 7.3 111.38 1.9 111.94 (0.9)
MCL 13.96 2.0 12.80 (2.7) 112.84 1.6 118.24 3.1
NEC 0.08 17.1 0.08 60.0 0.33 54.9 0.61 117.9
CIL 56.00 5.9 51.36 6.3 433.55 1.7 442.89 13.8
Source: Company, HDFC sec Inst Research

Page | 2
 COAL INDIA : RESULTS REVIEW 3QFY17

COAL continues to provide for Quarterly Financials Snapshot

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
wage cost hikes at ~10%, as
Net Sales 197,045 189,715 3.9 156,451 25.9
implied in the numbers
Employee costs 82,318 73,541 11.9 84,069 (2.1)
Stores and spares 17,666 17,805 (0.8) 14,892 18.6
Contractual expenses 33,681 29,615 13.7 23,666 42.3
Other Operating Expenses 26,225 25,037 4.7 23,479 11.7
Changes to Inventory (2,413) (5,621) (57.1) 7,169 (133.7)
EBITDA 39,567 49,337 (19.8) 3,176 1,145.8
% Margin 20.1 26.0 2.0
Other Operating Income 7,102 6,279 5,675.0
Other Income/(expense) 11,167 13,539 14,125
Interest Cost 1,107 30 970
Depreciation 7,011 6,279 6,921
OB Removal adjustment 8,124 7,419 1,425
PBT 41,595 55,429 (25.0) 13,661 204.5
Tax 12,754 18,584 7,660
APAT 28,841 36,845 (21.7) 6,002 380.5
E/o (adj for tax) 0 337 0
RPAT 28,841 37,182 (22.4) 6,002 380.5
APAT + OBR 36,965 44,264 (16.5) 7,426 397.8
Source: Company, HDFC sec Inst Research

Page | 3
 COAL INDIA : RESULTS REVIEW 3QFY17

Per Tonne Analysis

3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Strong e-auction volumes
Production (mT) 147.7 144.0 2.6 104.4 41.5
(18% of the mix, up 671bps
Sales (mT) 142.3 137.9 3.2 115.9 22.8
YoY, 126 bps QoQ) and pricing
FSA 112.9 116.4 (3.1) 93.0 21.3
(21% premium over FSA, 1700
e-Auction 25.2 15.2 66.2 19.1 32.2
bps QoQ, -2,479 bps YoY)
% of sales 18% 11% 671 bps 16% 126 bps
drove improvement in
% of total volumes 17.7 11.0 16.4
realisations (flat YoY, 2.6 %
Washed coal 3.5 3.7 (5.7) 3.1 12.7
QoQ)
Ending inventory (mn T) 48.6 42.2 15.2 43.1 12.7
Realisations (Rs/T) 1,385 1,376 0.7 1,350 2.6
FSA volumes were down 3.1%
FSA 1,289 1,277 0.9 1,292 (0.3)
YoY, while realisations were
e-Auction 1,564 1,866 (16.2) 1,348 16.0
flat
Premium over FSAs 21% 46% (2,479 bps) 4% 1,701 bps
Washed coal 2,379 2,048 16.2 2,221 7.1
EBITDA (Rs/t) 278 358 (22.3) 27 914.8
Source: Company, HDFC sec Inst Research

Key Assumptions
Year Ending March FY14 FY15 FY16 FY17E FY18E FY19E
Production (mT) 462.4 494.2 538.8 548.9 595.2 657.0
Sales (mT) 470.3 488.3 533.5 544.3 597.4 650.0
FSA 396.3 426.0 447.7 432.6 490.2 534.4
E-auction 58.0 46.9 66.3 91.8 86.5 94.3
Washed Coal + Other Byproducts 17.6 16.1 15.4 19.4 20.0 20.7
Ending Inventory (mn T) 53.3 59.2 64.5 69.1 66.8 73.8
Realisations (Rs/T) 1,463 1,475 1,418 1,406 1,479 1,502
FSA 1,314 1,327 1,311 1,317 1,343 1,357
E-auction 2,182 2,450 1,858 1,554 1,948 2,035
Washed Coal 2,556 2,591 2,393 2,635 2,718 2,787
Employee Costs/t 590 612 556 603 588 548
Outsourcing Cost/t 145 174 209 227 240 262
Other Costs/t 318 298 302 310 324 327
EBITDA/T (Rs) 409 390 352 265 326 365
Source: Company, HDFC sec Inst Research

Page | 4
 COAL INDIA : RESULTS REVIEW 3QFY17

Changes In Estimates
Old New % change
Marginal changes to our
FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
earnings estimates Sales volumes (mT) 544.3 597.4 650.0 539.2 591.8 643.8 (0.9) (0.9) (0.9)
Realisations (Rs/t) 1,410 1,495 1,529 1,399 1,472 1,496 (0.7) (1.5) (2.2)
Revenues (Rs mn) 767,602 893,279 993,902 754,607 871,141 962,975 (1.7) (2.5) (3.1)
EBITDA (Rs mn) 159,292 222,773 275,929 164,809 217,721 264,041 3.5 (2.3) (4.3)
PAT (Rs mn) 102,409 139,698 175,600 109,538 141,119 172,105 7.0 1.0 (2.0)

Off-take Growth Remains Weak E-Auction Pricing Recovers From Bottom

Coal production Off take Blended realisations FSA E-auction
170.0 mnT Rs/t
3,500

150.0 3,000

130.0 2,500

110.0 2,000

90.0 1,500

70.0 1,000
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Weak e-auction and FSA FSA Volumes Declined Dragging Overall Offtake Costs Appreciate Due To Wage Hike Provisioning
FSA E-Auction Washed coal Others
pricing continues to weigh on Employee costs/t Contractual exp/t
Rs/t
145

142
profitability mnT
137 1,800
134

133
Other costs/t EBITDA/t
129
128

126

150
125
125
123

122

120
117

116
115
113
112

110
110

109
106

101

125 1,350
93

100
75 900

50
450
25
- -
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 5
 COAL INDIA : RESULTS REVIEW 3QFY17

Income Statement Balance Sheet

Year ending March (Rs mn) FY15 FY16 FY17E FY18E FY19E As at March (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 720,146 756,443 754,607 871,141 962,975 SOURCES OF FUNDS
Growth % 4.7 5.0 (0.2) 15.4 10.5 Share Capital 63,164 63,164 62,070 62,070 62,070
Employee Expenses 298,741 296,598 328,198 351,550 356,208 Reserves 340,366 275,811 245,664 237,814 260,950
Contractual expenses 85,126 111,292 122,992 142,907 169,467 Total Shareholders Funds 403,530 338,975 307,735 299,884 323,020
Materials expenses 67,224 56,383 64,824 80,847 87,597 Minority Interest 658 1,048 1,048 1,048 1,048
Other operating expenses 78,489 104,650 99,564 107,824 119,601 Long Term Debt 2,018 2,631 2,631 2,631 2,631
Operating profits 190,567 187,519 139,028 188,013 230,102 Short Term Debt 2,065 9,357 67 67 67
Operating Profit Margin (%) 26.5 24.8 18.4 21.6 23.9 Total Debt 4,083 11,988 2,698 2,698 2,698
Other operating income 21,576 23,998 25,781 29,709 33,939 Deferred Taxes (19,596) (20,445) (20,445) (20,445) (20,445)
EBITDA 212,143 211,517 164,809 217,721 264,041 Long Term Provisions & Others 405,112 445,005 478,893 512,781 546,670
EBITDA % 29.5 28.0 21.8 25.0 27.4 TOTAL SOURCES OF FUNDS 793,787 776,576 769,933 795,971 852,995
EBITDA Growth % 0.4 (0.3) (22.1) 32.1 21.3 APPLICATION OF FUNDS
Depreciation 23,198 24,664 27,763 30,768 34,674 Net Block 161,150 183,608 190,845 225,078 255,404
Overburden removal CWIP 63,695 74,348 81,348 58,348 35,348
38,267 28,114 25,114 25,114 25,114
adjustment Investments 2,170 32 32 32 32
EBIT 150,678 158,738 111,932 161,840 204,253 LT Loans and Advances 72,547 89,127 89,127 89,127 89,127
Other Income (Incl EO Items) 65,235 57,360 47,025 43,680 46,175 Total Non-current Assets 299,562 347,114 361,352 372,584 379,910
Interest 73 207 207 1,000 1,000 Inventories 61,838 75,953 68,225 71,601 79,149
PBT 215,839 215,891 158,751 204,520 249,428 Debtors 85,219 114,637 99,236 95,467 105,531
Tax (Incl Deferred Tax) 78,573 73,148 49,213 63,401 77,323 Other Current Assets 120,388 117,516 117,516 117,516 117,516
RPAT 137,266 142,743 109,538 141,119 172,105 Cash & Equivalents 518,810 426,530 428,469 445,129 478,369
Minority Interest Total Current Assets 786,255 734,636 713,445 729,713 780,564
EO Loss/Profit (Net of Tax) 50 415 - - - Creditors 9,208 9,785 9,473 10,936 12,089
APAT 137,216 142,329 109,538 141,119 172,105 Other Current Liabilities &
282,822 295,390 295,390 295,390 295,390
APAT Growth (%) (9.2) 3.7 (23.0) 28.8 22.0 Provns
EPS 21.73 22.60 17.47 22.74 27.73 Total Current Liabilities 292,030 305,175 304,863 306,326 307,479
EPS Growth (%) (9.2) 4.0 (22.7) 30.1 22.0 Net Current Assets 494,225 429,461 408,582 423,387 473,085
Source: Company, HDFC sec Inst Research TOTAL APPLICATION OF FUNDS 793,787 776,576 769,933 795,971 852,995
Source: Company, HDFC sec Inst Research

Page | 6
 COAL INDIA : RESULTS REVIEW 3QFY17

Cash Flow Key Ratios

Year ending March (Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 215,839 215,891 158,751 204,520 249,428 PROFITABILITY (%)
Non-operating & EO items (7,534) (259) (13,137) (9,792) (12,287) EBITDA Margin 29.5 28.0 21.8 25.0 27.4
Interest expenses 73 207 207 1,000 1,000 APAT Margin 19.1 18.8 14.5 16.2 17.9
Depreciation 23,198 24,664 27,763 30,768 34,674 RoE 33.2 38.4 33.9 46.4 55.3
Working Capital Change (9,820) (53,862) 22,818 1,856 (16,459) RoIC - - - - -
Tax Paid (95,721) (70,124) (49,213) (63,401) (77,323) RoCE 33.0 38.2 33.6 46.3 55.0
OPERATING CASH FLOW ( a ) 126,036 116,518 147,188 164,950 179,033 EFFICIENCY
Capex (48,857) (54,573) (42,000) (42,000) (42,000) Tax Rate (%) 36.4 33.9 31.0 31.0 31.0
Free cash flow (FCF) 77,179 61,945 105,188 122,950 137,033 Asset Turnover (x) 1.4 1.2 1.2 1.3 1.4
Investments 2,085 2,138 0 0 0 Inventory (days) 30 33 33 30 30
Non-operating Income 55,775 45,406 47,025 43,680 46,175 Debtors (days) 42 48 48 40 40
INVESTING CASH FLOW ( b ) 9,003 (7,029) 5,025 1,680 4,175 Payables (days) 4 5 5 5 5
Debt Issuance/(Repaid) 2,426 7,055 (9,290) 0 0 Cash Conversion Cycle (days) 68 77 76 65 65
Interest expenses (73) (207) (207) (1,000) (1,000) Debt/EBITDA (x) N/M N/M N/M N/M N/M
FCFE 11,356 (180) (4,472) 680 3,175 Net D/E N/M N/M N/M N/M N/M
Share Capital Issuance 0 0 (1,093) 0 0 Interest Coverage - - - - -
Dividend (212,998) (207,407) (104,278) (148,969) (148,969) PER SHARE DATA
FINANCING CASH FLOW ( c ) (210,645) (200,558) (113,775) (149,969) (149,969) EPS (Rs/sh) 21.7 22.6 17.5 22.7 27.7
NET CASH FLOW (a+b+c) (75,607) (91,069) 38,438 16,661 33,239 CEPS (Rs/sh) 31.5 31.0 25.9 31.7 37.4
EO Items / Others 17,148 (1,210) (36,500) DPS (Rs/sh) 20.7 27.4 14.0 20.0 20.0
Closing Cash & Equivalents 518,810 426,530 428,469 445,129 478,369 BV (Rs/sh) 63.9 53.7 49.6 48.3 52.0
Source: Company, HDFC sec Inst Research VALUATION
P/E 14.9 14.4 18.6 14.3 11.7
P/BV 5.1 6.0 6.5 6.7 6.2
EV/EBITDA 7.9 7.6 9.6 7.2 5.8
OCF/EV (%) 8.4 7.3 9.3 10.5 11.6
FCF/EV (%) 5.1 3.9 6.6 7.8 8.9
FCFE/Market cap (%) 5.2 3.0 3.2 6.1 6.9
Dividend Yield (%) 6.4 8.4 4.3 6.2 6.2
Source: Company, HDFC sec Inst Research

Page | 7
 COAL INDIA : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Date CMP Reco Target
Coal India TP 15-Feb-16 303 BUY 380
400
31-May-16 293 BUY 369
380
14-Sep-16 331 BUY 369
360 14-Dec-16 306 BUY 341
340 13-Feb-17 325 BUY 369
320
300
280
260 Rating Definitions
240
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Apr-16
Feb-16

Sep-16

Feb-17
Jun-16

Jul-16
Mar-16

Dec-16
Oct-16
Aug-16

Nov-16

Jan-17
May-16

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 3QFY17

Disclosure:
We, Ankur Kulshrestha, PGDBM, & Sarfaraz Singh, PGDM, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
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Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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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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