Coal news and updates

Coal India - August production/offtake weaken on seasonality

CIL's August'13 production/offtake declined 3%/9% MoM to 31.7mt/35.1mt due to higher rainfall during the month. Production and offtake typically remain soft in August (3yr avg. MoM decline of 10% in Aug) owing to the monsoon impact. YTD (Apr-Aug'13), production/offtake increased 3%/4% YoY to 167.3mt/188.8mt vs. CIL's offtake growth target of 6% for FY14. We reiterate BUY with Mar'14 TP of Rs 295 as valuations are attractive post the recent share price correction (-17% vs. -6% for Sensex in the last 3mths).

- Sequential decline in production/offtake due to seasonal impact: CIL's August production/offtake declined 3%/9% sequentially to 31.7mt/35.1mt due to higher rainfall during the month. Production at two of CIL's largest entities SECL/MCL was down 6%/4% sequentially in August (offtake down 8%/7%). YoY, however, production/offtake was up 11%/7%.

- E-auction prices remain under pressure amid sliding international prices: CIL's average e-auction price realisation for July'13 declined 6% MoM (down 16% YoY) to Rs 2,177/t as the premium over notified price was squeezed to 29% (vs. 44%/46% for Jul'12/Jun'13). International coal prices remain subdued as Indonesian/South African coal price indices are down 6%/18% YTD. CIL offered 4.55mt of coal for e-auction, of which 4.01mt was allocated in July.

- Coal imports by power utilities flat MoM in July: Coal imports by power utilities stood at 7.47mt in July vs. 7.44mt in June (4.01mt in Jul'12). Imports for the April-July'13 period stood at 29.67mt, up 75% YoY on a low base. Imports for NTPC plants were down 11% MoM to 1.8mt in July (provisional).

- Valuations attractive: After the recent price correction, current valuations look attractive at 4.6x FY15E EV/EBITDA. Divestment remains an overhang on the stock.

 
Source: Equity Bulls