Coal India Limited
COAL announced that the Board has approved revising the non-coking coal prices with immediate effect, and this would translate into additional revenue of Rs64.2bn for FY19 and Rs19.56bn for the remainder of FY18. This comes over and above the Rs50/t increase in coal loading, which per the company would result in Rs25bn of additional revenues in FY19. Cumulatively, the two measures would add ~Rs90bn in incremental revenues for FY19; and taking ~640MT of volumes in FY19, it translates into an effective price increase of Rs141/t or ~11% based on 2QFY18 realisation. The combined impact of these 2 measures more than offsets the wage cost increase of Rs56.7bn. However, on a net basis, the earnings increase could be limited given: a) likely increase in contractual wage costs, and b) diesel cost increase given the sharp increase in diesel prices. Net Net, this is a positive step for the company and we expect a positive reaction to the share price given the stock’s relative underperformance to the domestic resource group. We also see upside risks to the dividend and potentially even a government stake sale coming through. The price hike needs to be seen in the context that coal is one of the commodities identified to fill the funding gap in GST collections. Hence there were expectations of an increase in coal levy in the upcoming Budget. For the company to take a large price hike before the Budget is positive, in our view.