The out­look has be­come darker for Coal In­dia

Mint Asia ST - - Otherviews - PALLAVI PENGONDA


In­dia Ltd’s shares are no di­a­mond in the mine. The stock has been a lag­gard so far this fis­cal year, un­der­per­form­ing the Nifty 500 in­dex by 15%, even af­ter ad­ding back the gen­er­ous div­i­dend it paid in­vestors.

Ex­pect the trend to con­tinue be­cause pro­duc­tion and off­take num­bers for De­cem­ber are not en­cour­ag­ing at all. Out­put and sales vol­umes (or off­take) last month de­clined by 0.9% and 1.2%, re­spec­tively, on a year-onyear ba­sis. Ac­cord­ing to an­a­lysts at Edel­weiss Se­cu­ri­ties Ltd, the fall in ship­ments is a first since Oc­to­ber 2016.

Sure, growth rates for the nine month pe­riod ended De­cem­ber are bet­ter with pro­duc­tion and off­take in­creas­ing by 7.4% and 5.5%, re­spec­tively, over the same pe­riod last year.

But this is hardly help­ful. Coal In­dia’s ask­ing pro­duc­tion growth rate for the re­main­ing three months to meet its tar­get of 630 mil­lion tonnes for FY19 will have to be about 19% year-on-year. That’s a tall or­der and it’s a fore­gone con­clu­sion the com­pany will miss its guid­ance.

From a slightly more near-term per­spec­tive, ex­pec­ta­tions from the De­cem­ber quar­ter aren’t par­tic­u­larly rosy. That’s mainly on ac­count of sub­dued out­look on vol­umes of coal sold through the e-auc­tion route. E-auc­tion coal typ­i­cally fol­lows mar­ket prices and en­joys higher re­al­iza­tions com­pared to coal sold through the fuel sup­ply agree­ment (FSA).

“The e-auc­tion vol­ume dwin­dled in Oc­tNov’18 as the govern­ment pri­or­i­tized sup­ply to power plants un­der FSA in the fes­tive pe­riod, thereby off­set­ting the ben­e­fit of high e-auc­tion pre­mi­ums,” wrote an­a­lysts from SBICAP Se­cu­ri­ties Ltd in a note on 2 Jan­uary. This is likely to im­pact Coal In­dia’s blended price re­al­iza­tion and prof­itabil­ity in the De­cem­ber quar­ter, added the bro­ker.

Be­sides, im­pacted by grade slip­pages, wage re­vi­sion and el­e­vated capex, Coal In­dia’s free cash flow to eq­uity (FCFE) in­creased at a tepid com­pound an­nual growth rate of 2.5% over fis­cal years 2014-2018 less than half of growth in vol­umes, pointed out an­a­lysts from Prab­hu­das Lil­lad­her Pvt. Ltd in a re­port on 26 De­cem­ber.

“We ex­pect FCFE growth to lan­guish be­tween 2.0-2.2% in FY19E-FY21E due to sta­ble earn­ings growth and high capex in­ten­sity,” they added.

These fac­tors will con­tinue to keep sen­ti­ments muted for the Coal In­dia stock. In fact, the stock hasn’t per­formed on the bourses de­spite cough­ing up good num­bers for the half- year ended Septem­ber.

In the last few months, the govern­ment’s of­fer to sell shares in the com­pany, lead­ing to an in­crease in free float, is an­other rea­son that weighed on the stock.

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