Better FSA realization drives beat
Valuations attractive; Dividend yield of 9-10%
* 1QFY20 revenue grew 4% YoY to ~INR249b (v/s est. INR237b) led by FSA realization increase of ~6% to INR1,370/t (v/s est. INR1,310/t), which was partly offset by lower e-auction realizations at INR2,155 (-10% YoY/-22% QoQ). Volumes were flat YoY at ~153mt (in-line). The increase in FSA realization was due to hike in coking coal prices at BCCL & CCL along with higher sales to the non-Power sector (~4mt higher YoY).
* Cash cost (ex-OBR) declined 1% YoY to INR1,135/t, despite higher wage bill. The company’s wage bill was impacted (~INR2.7b) on an actuarial valuation given the fall in interest rates. Excluding wage bill, cash cost declined ~5% YoY.
* Adj. EBITDA (ex-OBR) increased 15% YoY to ~INR75b driven by higher FSA realization and lower cash costs.
* Adjusted PAT was up 22% YoY to INR46.3b (v/s est. INR39.3b), despite strong base (1QFY19 PAT grew 60% YoY). The beat to our estimate was driven by higher FSA realizations and higher other income.
Valuations attractive; Maintain Buy
* COAL has managed to keep costs under control on the back of productivity measures and shutting down of old mines. We note that despite it undertaking price hikes for contractual labor in 2HFY19, cash costs/t have declined YoY.
* Ongoing efficiency measures and continued growth in volumes (our est. 5-6%), should drive 5% EBITDA CAGR over FY19-21, despite the high base of FY19.
* The stock trades attractively at ~3x FY20E EV/adj. EBITDA (v/s historical average of 7x), P/E of 7-8x (v/s average of ~14x) and offers dividend yield of ~9- 10%. We value the stock on 4.5x (v/s 5x earlier) FY20E EV/EBITDA at INR278/share. Maintain Buy.
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