Coal India Limited again reported impressive performance in Q1FY23

Coal India Limited is an Indian government-owned coal mining and refining corporation, headquartered in Kolkata. It is a Maharatna public sector undertaking (PSU) and the world’s largest coal producer. With over 272,000 employees, it is also India’s eighth largest employer.

In FY22, CIL produced 623 million tonnes (MT) while offtake for FY22 was at 662 MT. Coal India has 345 mines (as on April 1, 2021) of which 151 are underground, 172 open cast and 22 mixed mines. CIL has extensive mining capabilities. It has advanced technology in open cast mining.

Coal India recently announced their Q1FY23 results on 10^th August 2022, where they reported another quarter of stellar performance. They succeeded in beating analysts’ expectations as a result of the high e-auction premium over FSA coal in the Q1FY23. Even the Coal India stock is in an uptrend and is currently trading at its all-time high , highlighting positive consumer sentiment. So, let’s now analyse their Q1FY23 results and look for a probable investment opportunity.

Key highlights of Coal India Q1FY23 results

• Revenue at Rs 35,092 crores grew by 40% YoY and 8% QoQ in Q1FY23
• PAT of Rs 8,833 crores in Q1FY23, grew 178% YoY and 32% QoQ
• Coal India reported a massive YoY jump in its operating profit during the Q1FY23 despite a 30.7% reduction in e-auction volumes and only 11% growth in overall volumes
• EBITDA rose 152% to Rs 12250 crore over the same period
• QoQ, e-auction volumes fell by 24.4% and overall volumes fell by 1%, but operating profits rose 35%
• The significant part of the profits came from the ability to charge higher prices in e-auctions, the average selling price (ASP) per tonne through this channel went up by 176.6% YoY and by 78.3% QoQ and a smaller part by improved operational
• Overall, the company improved its margins to 30% from 12% a year ago and 21% in Q4FY22

Coal India results Q1FY23: Revenue grew 40% while PAT grew 178% YoY

Revenue at Rs 35,092 crores grew by 40% YoY and 8% QoQ from Rs 25282 crores in Q1FY22 and Rs 32707 crores in Q4FY22, thereby beating analysts’ estimate by 13%. The beat was led by higher average realisation in the Q1FY23, which stood significantly strong as against previous quarters, at Rs 1,829/tonne up 26% YoY and 10% QoQ.

Coal India also reported a PAT of Rs 8,833 crores in Q1FY23 which grew 178% YoY from Rs 3170 crores in Q1FY22 and 32% QoQ from Rs 6693 crores in Q4FY22.

Coal India results Q1FY23

Coal India reported a massive YoY jump in its operating profit during the Q1FY23 despite a 30.7% reduction in e-auction volumes and only 11% growth in overall volumes. EBITDA rose 152% to Rs 12250 crore over the same period.

QoQ, e-auction volumes fell by 24.4% and overall volumes fell by 1%, but operating profits rose 35%This was because of coal prices rising globally as also reflected in the escalation of raw material prices by 60% YoY.

The significant part of the profits came from the ability to charge higher price in e-auctions–the average selling price (ASP) per tonne through this channel went up by 176.6% YoY and by 78.3% QoQ and a smaller part by improved operational efficiency.

Wage costs falling by 3% YoY also helped the bottom line. Along with employee costs, overburden and social costs have also dropped. Overburden costs are what mining companies have to bear to clear a site. Overall, the company improved its margins to 30% from 12% a year ago and 21% a quarter ago.

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Coal India results Q1FY23: 85% total Volume sold through FSA agreements

While its e-auction profits have been stellar, Coal India sells a massive 85% of its total volumes through fuel supply agreements (FSAs).

Though there was a delay in increasing FSA prices, the coal producer managed to realise strong revenue from the FSA route by better coal-grade management. Coal India sells nearly 17 different grades of coal, which are graded by its calorific or heat-generation value. For the past few quarters, the producer has been able to achieve higher grades of coal because of improved mining operations. Industry experts say that Coal India used to operate mines using little mechanisation but that has changed in the recent past, with the company deploying newer technologies.

While this seems like a structural change in its operations and looks sustainable, the profits realised from e-auctions may not hold beyond the first half of this fiscal year.

Technical Analysis of Coal India share price

Coal India’s share price has given a return of 53% in the last 12 months, from Rs 144 in August 2021 to Rs 220 levels in August 2022. Currently, it is trading at its 52 weeks high, with 50 EMA above 100 and 200 EMA for approximately a year. The Coal India stock has already delivered a robust return and still has enough potential to continue delivering returns. Post the stellar Q1FY23 results, it went up by almost 7%. Being the largest individual coal producer in the world, the company holds a lot of potential to deliver robust returns in future as well. Therefore, long term investors can consider investing in this stock to enjoy the current bull rally and as long as the EMA remains bullish.

Kotak has maintained its Reduce call with a revised fair value of Rs 225/share from Rs 185/share. The upside risk to this estimate comes from elevated imported coal prices, which will then sustain the higher e-auction realisations.

Prabhudas Lilladher has retained its Accumulate rating on the stock and revised the target price upwards to Rs 255 from Rs 220. ICICI Direct has also maintained their buy rating on the stock with a target price of Rs 275, almost 25% Upside.

Our view

High prices of imported coal will likely continue for H1FY23 and will support demand as well as auction prices. Whereas Investors argue that Coal India’s costs are understated as wage revision is pending for non-executive employees (94% of total headcount) since July’21, overlooking the fact that FSA prices have also not increased for the last four-and-a-half years. Usually, upward revision in wages is followed by hike in FSA prices. Therefore, this will count for one of their key concerns.

On the Univest App, the verdict says that the company has very strong fundamentals and is bullish on both short as well as long term time frames. Therefore, investors can consider buying this Maharatna stock.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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