Coal India Ltd (CIL) reported its financial results for the March quarter on May 7. The company’s revenue from operations increased by 16.5 per cent year-on-year to ₹38,152.3 crore, which was 8.17 per cent higher than the consensus estimates. However, its EBITDA fell about 24.02 per cent to ₹6,898.1 crore due to one-time wage hike provision and thereby missing the estimates by about 25 per cent. Consequently, the net profit fell by about 17 per cent to ₹5,533.23 crore.
Although the earnings miss had a significant impact visually, the stock’s reaction during Monday’s trading session was not significant as the earnings miss was caused by one-time items. The stock ended the day with a 1.83 per cent decline.
The company produced nearly 224.16 million tonnes (mt) of coal during the quarter, up 7.25 per cent y-o-y, while its offtake rose by 3.68 per cent to 186.87 mt. The sales from offtake through fuel supply arrangements (FSA) increased by about 17 per cent because of 11 per cent higher volume offtake and five per cent higher realisation. Though the base price hike was not there, a better volume mix has led to higher FSA realisation per tonne.
E-auction realisation remained high at ₹4,545.69 per tonne (192 per cent premium to FSA), i.e. 85 per cent up y-o-y, on account of which sales through e-auction rose by 10 per cent despite around 41 per cent fall in volumes.
Ultimately, higher volumes, a better volume mix from FSA and an increase in e-auction realisation led to around a 17 per cent increase in the company’s revenue y-o-y during the quarter. However, EBITDA and net profit fell by 24 per cent and 17 per cent, respectively mainly because of a one-time wage hike provisioning of ₹ 5,870.16 crore pending since July 1, 2021.
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Outlook and valuation
Coal India achieved its FY23 production target of about 700 mt, up 13 per cent Y-o-Y and had an overall offtake of 695 mt, i.e. up around 5 per cent. Due to higher rake availability and a strong estimated power demand, the company has fixed the production target at around 780 mt. To achieve a production target of 1 billion tonnes per annum, the company aims to spend approximately ₹60,000 crore on capital expenditure over the next four years.
Currently, the stock trades at a one-year forward P/E of 6.3 times (Bloomberg estimates) below its historical five year average P/E of 7 times. For FY23, CIL has declared a dividend of ₹24.25 per share, translating into a 10.4 per cent yield at current market price.
Despite operating in a capital expenditure-driven business, the company maintains healthy financials by consistently generating positive free cash flow and remaining a net cash company. We maintain an accumulate stance on the stock due to the company’s monopolistic nature of business, healthy financials, strong dividend yield and attractive valuation.