India's coal ministry has pushed Coal India to reduce its E-auction sales. The ministry has asked Coal India to reduce E-auction shipments by 33mn tonnes in FY15. The idea behind such a move is to increase availability for domestic power producers.

1. 1
Coal India
Fall before the rise...
Mining
E-auction contributed 1/3rd to FY14 EBITDA
In FY14, Coal India shipped 471.5mn tonnes, of which 58mn tonnes
(12.3%oftotalvolumes)cameinfromE-auction. Asp'sforE-auction
coal stood at INR2,182/tonne Vs INR1,314/tonne for FSA’s. Cost for
producing E-auction coal is not any different than the FSA coal. The
average cost of production for FY14 stood at INR1,026. This helps
us in computing segment EBITDA. E-auction segment contributed
18% to net sales, and 33% at Adj. EBITDA (Ex. OBR) in FY14.
E-auction EBITDA contribution in 4Q14 was at 26%
0%
20%
40%
60%
80%
Q1FY14 Q2FY14 Q3FY14 Q4FY14
FSA EBITDA (%) E-Auction EBITDA (%)
Material impact, Price hike in E-auction to partially offset
In simpler terms, the product of the E-auction volume loss and the
difference in realizations between the E-auction coal and FSA will
be the loss that Coal India will have to take which in this case
translates to INR28.6bn (33mn *INR868- 12% of our Adj FY16
EBITDA). The only way that this could get offset by is that on the
remainder of E-auction quantity, Coal India manages to increase
its prices. We understand that within the E-auction space it is the
non power utilities that consume 65-70% of the coal. This implies
that scope of increasing prices here is possible. Mr. Roongta, CEO
July 30, 2014 UPDATE
Shareholding (%) Jun-14
Promoters 89.65
FIIs 5.52
DIIs 2.79
Others 2.04
Relative Price Performance
Key Data
BSE Code 533278
NSE Code COALINDIA
Bloomberg Code COAL IN
Reuters Code COAL.BO
Shares Outstanding (mn) 6316.36
Face Value 10
Mcap (INR bn) 2432.11
52 Week H/L 423.85/238.35
2W Avg. Qty.NSE 3765519
Free Float (INR Bn) 251.7
Beta 0.93
Y/E (INR mn) FY13 FY14 FY15E FY16E
Net Sales 683,027 688,100 710,108 758,651
Growth (%) 9.48 0.74 3.20 6.84
EBIDTAM (%) 26.48 23.20 23.38 24.41
Adj. PAT 173,495 151,102 156,377 170,398
Growth (%) 18.32 -12.91 3.49 8.97
Adj. EPS (INR) 27.47 23.92 24.76 26.98
P/E(x) 14.64 16.80 16.24 14.90
EV/EBIDTA 10.66 12.64 11.58 10.12
Net Debt/Equity -126.01 -122.96 -130.53 -126.94
RoACE (%) 52.69 48.44 50.61 49.47
RoAE (%) 38.97 33.21 34.87 34.21
India's coal ministry has pushed Coal India to reduce its E-auction sales. The ministry has asked Coal India to reduce E-auction
shipments by 33mn tonnes in FY15. The idea behind such a move is to increase availability for domestic power producers. In
pursuit of increasing coal availability, Coal India will lose volumes on which it makes chunk of its profitability. We believe that
this move will hurt Coal India's profits (one of the reasons staying negative on the stock) which could get offset if it manages
to increase prices of its remaining e-auction coal. We maintain our sell rating with target price on INR329, considering lower/
higher volumes for E-auction/FSA coal. We have increased E-auction prices by 10% as price push there is possible given 65-70%
is consumed by non power sectors.
Pritesh U Jani
pritesh.jani@spagroupindia.com
Ph. No. 91 22 4289 5612
of Vedanta Aluminum did mention that going forward E-auction
prices may rise 15-20%. Our interaction will Coal India confirmed
that price hike in E-auction coal is a possibility, however quantum
cannot be defined. This would help offset its losses reducing to 6-
7% of our Adj. EBITDA from 12%.
EBITDA/t of FSA @ INR449 & E-auction@INR1,180
0
500
1,000
1,500
Q1FY14 Q2FY14 Q3FY14 Q4FY14
INR/t
FSA E-Auction
Concerns in short term, gains in long term ?
In the long run, Coal India offers to ride on India's economic
recovery. We remain negative over next 4-6months after a swift
run-up, ahead of its fundamentals. Coal India continues to miss
on its production/shipments target for 1Q15. Shipment missed by
11.5mn tonnes. Other concerns are 1) Workers strike at Odisha
mine, 2) Proposed fertilizer diversification, 3) Valuation Vs global
peers and 4) Low chances of price hikes under FSA. We understand
that FSA demand in FY14 was modest which in turn had led to
higher E-auction volumes. One of the only silver linings is that it
has opened a new mine at Jharkhand. This is likely to add ~3mn
tonnes for FY15. We value the stock at 6.5x FY16 adj EV/EBITDA to
arrive at target price of INR329. Maintain Sell.
60
80
100
120
140
160
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Coal India Sensex
Sensex: 26087 CMP:INR367 Target: INR 329

2. 2
Mining
(INR) FY13 FY14 FY15E FY16E
Shipments mn tonnes 465 472 490 506
Asp's/t
Raw coal 1,284 1,314 1,364 1,414
E-Auction 2,544 2,182 2,400 2,450
Beneficiated 3,006 2,123 2,173 2,223
Blended Asp/t 1,468 1,459 1,450 1,498
Staff costs/t 587 589 587 614
As % of Sales 40.0% 40.4% 40.5% 41.0%
Total cost/t 1079.6 1120.6 1110.6 1132.4
EBITDA/t 389 339 339 366
Coal India Sensitivity - Overall Volumes
A 10% change in overall volumes, leads to 19/14% change in
EBITDA/PAT and 12% in Target price. We have currently assumed
506mn tonnes as Coal India's shipments for FY16
Overall Shipments FY16 Shipments (mn tonnes)
INR mn 456 506 557
Revenue 682,871 758,651 834,620
EBITDA 148,995 185,204 222,033
PAT 146,500 170,398 194,705
EPS (INR) 23.19 26.98 30.83
Target Price 288 329 370
Coal India - Sensitivity to E-auction Volumes
As of now, we have assumed that Coal India will divert 33mn
tonnes (base case) in FY15/16. A 10mn tonne improvement in
diversion increases EBITDA/Target price by 3.1%/1.9%.
FY16 Shipments diversion(mn tonnes)
E-auction Shipments (13) (23) (33)
Revenue 778,389 768,520 758,651
EBITDA 196,968 191,086 185,204
PAT 178,162 174,280 170,398
EPS 28.21 27.59 26.98
Target Price 341 335 329
We have cut E-auction volumes by 33mn tonnes and added under FSA sales. Post this, we have built in higher prices by 10% Vs FY14 for the
remainder quantity of E-auction coal. Subsequently, have kept FSA prices same, although risks of softening may emerge as demand to
absorb incremental volumes may not emerge.
(INR) FY13 FY14 FY15E FY16E
Shipments mn tonnes 465 472 490 506
Asp's/t
Raw coal 1,284 1,314 1,364 1,414
E-Auction 2,544 2,182 2,232 2,282
Beneficiated 3,006 2,123 2,173 2,223
Blended Asp/t 1,468 1,459 1,499 1,551
Staff costs/t 587 589 607 636
As % of Sales 40.0% 40.4% 40.5% 41.0%
Total cost/t 1079.6 1120.6 1126.9 1153.9
EBITDA/t 389 339 372 397
Key Assumptions (Previous)
Peer comparision - Coal India trading at 15% premium to overall
Mcap (USD bn) EV/EBITDA PE ROE
FY 16/CY 15 FY 16/CY 15 FY 16/CY 15
Arch Coal Inc 0.62 9.3 - -13.4
Peabody Energy Corp 4.19 7.5 43.9 4.0
SXCoal & Electricity Power 3.05 5.9 9.2 6.5
Yanzhou Coal Mining Co 5.22 7.6 10.8 4.9
Alliance Resource 3.72 5.1 10.0 46.1
BHP Billiton 188.87 6.5 13.0 15.8
Anglo American 38.47 5.2 9.8 9.8
Alpha Natural Resources 0.76 5.7 - -14.3
Bumi Resources 0.86 13.0 - -
Coal India 38.65 8.2 12.2 36.6
China Shenhua Energy 51.16 4.5 8.2 12.9
Average 7.1 14.6 10.9
Source: Bloomberg, SPAResearch
INR mn FY16E
EBITDA 185,204
OBR 35,447
Adj. EBITDA 220,651
EV/EBITDA on 2016 Adj EBITDA (X) 6.5
EV 1,434,231
Avg . Net Debt (640,792)
Target Market Cap 2,075,022
No of Shares 6316.36
Target price (INR) 329
Valuation
Key Assumptions (Revised)

3. 3
Consolidated Summary Financials
Income Statement
Year End March (INR mn) FY13 FY14 FY15E FY16E
Net Sales 683,027 688,100 710,108 758,651
Growth in Sales (%) 9.48 0.74 3.20 6.84
Employees Cost 273,208 277,694 287,594 311,047
Other Expenses 26,332 26,919 28,265 29,678
Total Expenditure 502,191 528,469 544,074 573,447
EBIDTA (without OI) 180,836 159,632 166,034 185,204
% Growth 15.67 -11.73 4.01 11.55
EBITDA Margin % 26.48 23.20 23.38 24.41
Depreciation/Amortization 18,130 19,964 20,550 21,500
EBIT 162,707 139,668 145,484 163,704
EBIT Margin % 23.82 20.30 20.49 21.58
Interest Expense 452 580 550 525
Other Income 87,467 89,694 92,000 95,000
Exceptionals 69 14 0 0
EBT 249,791 228,795 236,934 258,179
Tax Expenses 76,227 77,679 80,558 87,781
PAT 173,564 151,116 156,377 170,398
Minority Interest 0 0 0 0
APAT 173,564 151,116 156,377 170,398
% Growth 17.64 -12.93 3.48 8.97
APAT Margin % 25.41 21.96 22.02 22.46
Balance Sheet
Year End March (INR mn) FY13 FY14 FY15E FY16E
Sources of funds
Share capital 63,164 63,164 63,164 63,164
Reserves & Surplus 421,556 360,881 408,419 460,220
Total Networth 484,720 424,045 471,583 523,384
Minorities interests 636 636 636 636
Total Debt 10,778 1,715 8,715 9,715
Other Long term Liabilites 8,822 15,572 15,572 15,572
Total Liabilities 504,956 441,967 496,506 549,307
Application of funds
Net Block 169,617 191,002 185,452 180,952
Capital Work-in-Progress 0 0 650 1,500
Investments 23,950 37,749 37,749 37,749
Total Current Assets 886,841 793,955 887,428 946,130
Total Current Liabilities 575,452 580,739 614,774 617,024
Net Current Assets 311,389 213,216 272,655 329,106
Total Assets 504,956 441,967 496,506 549,307
Cash Flow
Year End March (INR mn) FY13 FY14 FY15E FY16E
Pre-tax profit 249,791 228,795 236,934 258,179
Depreciation 9,718 19,964 20,550 21,500
Chg in working capital -17,061 6,458 8,000 -8,343
Total tax paid -76,227 -77,679 -80,558 -87,781
Other operating activities 0.0 0.0 0.0 0.0
Cash flow from operations (a) 166,220 177,539 184,926 183,555
Capital expenditure -15,898 -41,349 -15,650 -17,850
Chg in investments -4,136 -13,800 0 0
Other investing activities 9,306 491 0 0
Cash flow from investing (b) -10,728 -54,658 -15,650 -17,850
Free cash flow (a+b) 155,493 122,881 169,276 165,705
Equity raised/(repaid) 0.0 0.0 0.0 0.0
Chg in minorities 100.0 0.0 0.0 0.0
Debt raised/(repaid) -2,275.6 -9,063.3 7,000.0 1,000.0
Dividend (incl. tax) -112,985 -212,282 -75,061 -116,914
Other financing activities 0.0 0.0 0.0 0.0
Cash flow from financing (c) -115,161 -221,346 -68,061 -115,914
Net chg in cash (a+b+c) 40,332 -98,464 101,216 49,791
Opening Cash 582,028 622,360 523,895 625,111
Closing Cash 622,360 523,895 625,111 674,902
Key Ratios
Year End March FY13 FY14 FY15E FY16E
Per Share Data (INR)
Adj. EPS 27.47 23.92 24.76 26.98
Growth (%) 18.32 -12.91 3.49 8.97
CEPS 30.34 27.08 28.01 30.38
DPS 14.01 28.97 14.85 16.19
BVPS 76.84 67.24 74.76 82.96
Return Ratios (%)
RoACE 52.69 48.44 50.61 49.47
RoANW 38.97 33.21 34.87 34.21
Liquidity Ratios
Net Debt/Equity -126.01 -122.96 -130.53 -126.94
Interest Coverage Ratio 553.85 395.45 431.79 492.77
Current Ratio 1.42 1.54 1.37 1.44
Efficiency Ratios
Asset Turnover Ratio 0.64 0.65 0.67 0.67
Inventory Days 30 30 27 27
Debtor Days 56 44 40 40
Creditor days 6 6 6 6
Valuation Ratios
P/E(x) 14.64 16.80 16.24 14.90
P/BV (x) 5.23 5.98 5.38 4.85
P/CEPS (x) 13.25 14.84 14.35 13.23
Dividend Yield (%) 3.5% 7.2% 3.7% 4.0%
EV/Net Sales (x) 2.8 2.9 2.7 2.5
EV/EBIDTA(x) 10.7 12.6 11.6 10.1
Mining

4. 4
Mining
Disclaimer: This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. SPA Securities Limited
(hereinafter referred as SPA) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should
not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis
for an investment decision. The intent of this document is not in recommendary nature. The views expressed are those of analyst and the Company may or may not subscribe to
all the views expressed therein The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon
such. SPA or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information
contained in this report. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. SPA or any of its affiliates or employees do not provide,
at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. SPA and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned
in this report. SPA has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock - No
2. Group/Directors ownership of the stock - No
3. Broking relationship with company covered - No
This information is subject to change without any prior notice. SPA reserves the right to make modifications and alternations to this statement as may be required from time to time.
Nevertheless, SPA is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.
SPA Securities Ltd SEBI Reg. Nos.
NSE Cash INB231178238
NSE Future & Option INF231173238
NSE Currency Derivatives INE231178238
BSE Cash INB011178234
BSE Currency Derivatives INE011178234
MCX-SX Cash INB261178231
MCX-SX Future & Option INF261178231
MCX-SX Currency Derivatives INE261178238
USE Currency Derivatives INE271178234
Mutual Fund ARN 77388
OTCEI INB200891838
PMS INP000003179
CDSL DP IN-DP-CDSL-485-2008
NSDL DP IN-DP-NSDL-316-2009
SPACAPITALSERVICES LIMITED
Investment Advisory Services,
AMFI Reg. No. ARN-0007
SPACAPITALADVISORS LIMITED
SEBI registered Category-1
Merchant Bankers
SEBI Regn. No. INM000010825
SPACOMTRADE PRIVATE LIMITED
Member of NCDEX & MCX.
NCDEX TMID-00729,
NCDEX FMC No.NCDEX/TCM/CORP/0714
SPAINSURANCEBROKINGSERVICESLTD
Direct Broker for Life and General
Insurance Broking
IRDA Lic. Code No. DB053/03
For More Information Visit Us At : www.spasecurities.com
Sharad Avasthi Dy Head - Equity Research sharad.avasthi@spagroupindia.com Tel.: +91-33-4011 4800 Ext.832
SPA Securities Ltd: Mittal Court, A-Wing, 10th Floor, Nariman Point, Mumbai - 400 021, Tel. No. : +91-022-4289 5600, Fax: +91 (22) 2657 3708/9