Nomura- Coal India -Mining Behemoth With Pseudo-utility Attributes
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Transcript of Nomura- Coal India -Mining Behemoth With Pseudo-utility Attributes
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8/16/2019 Nomura- Coal India -Mining Behemoth With Pseudo-utility Attributes
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Connecting Markets East & West
See Appendix A-1 for analyst certification, importantdisclosures and the status of non-US analysts.
Any authors named on this report are researchanalysts unless otherwise indicated.
Global Markets Research
Mining behemoth with pseudo-utility attributes
May 2016
Coal India
Anirudh Gangahar – NFASL+91 22 4037 4516
Archit Singhal – NSFSPL
+91 22 4037 [email protected]
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Coal India – Accumulate on dips
Note: [1] Pricing as of April 20, 2016; [2] Adjusted EBITDA = Reported EBITDA + OBR (Overburden Removal Provisioning); [3] Adjusted Net Profit = ReportedPAT + OBR less Extraordinary Items; [4] Ratings and price targets are as of the date of the most recently published report (http://www.Nomura.com) ratherthan the date of this document.
COAL IN – BuyCMP: INR279 | TP: INR310
Constructive for the long haul on volume growth, but needs a price injection to sustain FCF
World’s largest coal miner (production and reserves) with 7.2bn tons of proven coal reserves; collective
impetus to boost coal output seems to be materializing – FY16 offtake was up 8.8% y-y, trunk rail links to
augment evacuation capacity to come on stream starting CY2016. Favorable geology + output ramp-up mostly via OC mines to keep cost of production manageable.
However, upcoming wage revision this year (FY17) and envisaged ramp-up in capex necessitates a hikein notified coal prices to ensure healthy levels of FCF generation (yield at ~8%)
Catalysts: Hike in notified coal price in 1HFY17, 6-8% y-y rise in offtake materializes
Headroom to raise notified coal price of sub-5200GCV linkage coal (~40% below CIF price of comparablegrade imported coal) + reasonable financial merit and apolitical reasons (wage revisions) for GoI tosupport CIL’s cash flows. We expect a 3% y-y hike in notified coal prices in FY17F.
We expect ~8% CAGR in offtake during FY16-20F (reasonably conservative relative to GOI’s target);
issuance of bridge linkages, potential improvement in State Discoms’ financials & build-out of trunk raillinks provide visibility for offtake growth.
The auction of coal linkages (for non-regulated sectors as of now), GOI’s directive to increase proportionof crushed & washed coal sales should augment earnings, ease grade-slippage concerns.
Valuations: The stock offers a 6.5% dividend yield and ~8% FCFE yield
TP (INR310) = sum of the DCF value of cash flows of proven reserves (INR127); value of probablereserves & resources (INR110), and FY16F cash on hand (INR73).
At INR240-250, the stock price would reflect flat FSA realization during FY17-20F + 30% hike in wages.
CIL trades at 6.3x FY18F adjusted EV/EBITDA (at a premium to its regional peers + below its 3-yraverage); 12mnth forward FCFE yield of ~8% seems reasonable
Risks: Disinvestment overhang; inability to effect a price hike to offset wage revision impact
[1] Lingering divestment overhang (divestment of up to a 10% stake on GoI’s agenda), [2] Inability to raise
notified coal prices sufficiently + a drop in e-auction realizations. [3] Adverse policy decisions by GoI suchas curtailing e-auctions, [4] Delay in start-up of trunk rail links, [5] Demand for coal remains lackluster
Key financials and valuation metrics
Note: Adjusted Net Profit = Reported Net Profit + OBRemoval Adjustment -extraordinary items
Source: Company data, Nomura estimates
1
(INR m n) FY15 FY16F FY17F FY18F
Revenue 741,201 774,977 825,522 901,392
Reported EBITDA 173,354 185,477 178,381 189,641
Adjusted EBITDA 211,621 209,087 199,106 208,178
Reported net pro fit 137,267 140,415 130,084 136,401
Adjusted net prof it 177,155 163,667 150,809 154,937
Adjusted EPS 22.0 22.2 20.6 21.6
EPS grow th (%) (7.2) 0.8 (7.1) 4.9
BPS 64.0 53.2 52.2 52.1
Adjusted P/E (x) 12.7x 12.6x 13.5x 12.9x
Price/book (x) 4.4x 5.2x 5.3x 5.3x
EV/EBITDA (x) 8.3x 6.7x 6.6x 6.4x
ROE (%) 33.1 37.9 39.1 41.4
Dividend yield (%) 7.4 9.8 6.5 6.5
Net debt/equity (1.3) (1.3) (1.3) (1.3)
(Rs mn) FY15 FY16F FY17F FY18F
EBITDA
Reported 173,354 185,477 178,381 189,641
Adjusted 211,621 209,087 199,106 208,178
Net Profit
Reported 137,267 140,415 130,084 136,401
Adjusted 177,156 163,666 150,809 154,937EPS (Rs)
Reported 21.7 22.2 20.6 21.6
Adjusted 28.0 25.9 23.9 24.5
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Coal India – Stock price movement & valuations
Source: Bloomberg, Nomura research
Coal India – Key events and share price performance
2014: The stock rallied in May 2014on prospects of the new infra-focused GoI’s removing bottlenecks
in increasing domestic coal supply.However, orders to curtail e-auctionsales volume to 25-30mt (revokedlater) and disinvestment overhang(GoI divested 10% stake in Jan-2015) led to the correction thereafter.
2015: The stock rallied to reach itspeak in August on the back of aconsistent 7-10% y-y output growth + growing belief that the volume-ledgrowth will be sustainable due to
collective impetus by Centre/Stateand CIL to address bottlenecks &improve efficiencies. In August, therally fizzled out as GOI announcedits intent to divest a 10% stake (vs.widely expected 5% divestmentneeded to meet listing norms).
2016: YTD, the stock has correctedsharply on the back – [1] weakeningnear-term coal demand leading to
negligible y-y volume growth over thepast 3 months, [2] doubling of cleanenvironment cess to US$6/ton fromMarch 1 + sustained weakness inINA coal prices weighing on the needto take a substantial price hike, [3]lingering disinvestment overhang.
CIL – 1yr fwd EV/EBITDA (Adjusted)
CIL trades at a 1-year fwd EV/EBITDA of 6.6x
Source: Bloomberg, Nomura estimates
CIL – 1yr fwd P/E (Adjusted)
CIL trades at a 1-year fwd P/E of 11.7x
Source: Bloomberg, Nomura estimates2
220
270
320
370
420
Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16
Selective hike in
notified pricesby 11%
40% gain
on listing
GOI approves
10% divestment
Rs/sh
100% wage
revision
demanded
Notified prices
normalized; wage
revision finalised
GCV based pricesnotified
Board approves new
FSAs with minimalpenalty structure
Diesel prices
hiked by Rs5/ltr
Diesel price
hiked by
Rs10/ltr
Board approvesinterim dividend
of Rs9.7/sh
CIL hikes coal
prices by ~5%
GOI hints at
divesting 10%
stake in CIL
2QFY14
dented by
Grade
Slippage
ST & Loading
charges hiked
Hike in sizing
charges & WCL'snotified col prices
Rs29/sh
interim
dividend
declared
BJP-led govt.comes to power
MoP demands
CIL stops selling
coal via e-auction
GOI divests 10%
stake via OFS
INR20.7 interim
DPS declared
GOI issues draft
policy for auction
of coal linkages
GoI starts process
of divesting 10%
stake
GoM approves
'mining tax' at 26%
of net profits
Diversion of e-
auction coal to
IPPs
CIL asked to
cut e-auction
sales
INR27.4 interim
DPS declared
GoI approves
linkage auctions to
non-regulated
sectors
4
5
6
7
8
9
10
11
12
N ov -1 0
M ar -1 1
J ul -1 1
N ov -1 1
M ar -1 2
J ul -1 2
N ov -1 2
M ar -1 3
J ul -1 3
N ov -1 3
M ar -1 4
J ul -1 4
N ov -1 4
M ar -1 5
J ul -1 5
N ov -1 5
M ar -1 6
1yr Fwd EV EBITDA (Adj.) Mean
-1SD +1SD
7
9
11
13
15
17
N ov -1 0
M ar -1 1
J ul -1 1
N ov -1 1
M ar -1 2
J ul -1 2
N ov -1 2
M ar -1 3
J ul -1 3
N ov -1 3
M ar -1 4
J ul -1 4
N ov -1 4
M ar -1 5
J ul -1 5
N ov -1 5
M ar -1 6
1yr Fwd PE (Adj.) Mean
-1SD +1SD
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Coal India – Global valuation comparables
3
Note: [1] Pricing as of April 20, 2016; Jan 5, 2016 for US-listed companies; [2] CIL numbers are adjusted for provisioning of OB removal, [3]R1=Resources andR2=Reserves, [4] ‘NR’ = Not Rated; [5] US coal companies have Dec-ending fiscal year, hence for these companies, CY15=FY16
Source: Bloomberg for data on not rated stocks; companies; Nomura estimates
At CMP, the stock trades at a 1-yrforward EV/EBITDA of 6.6x and P/Eof 11.7x on our FY17F/FY18F
adjusted EBITDA/EPS forecast: themultiples are ~8%/16% below theirrespective three-year averages butabove historical trough levels.
However, on our below-consensusearnings forecast, the stock offers areasonable FCFE yield of 8%/7%for FY17F/FY18F.
Relative to the average valuationmultiples of GOI-owned power
utilities in India, CIL trades at a 10%premium to normalized FY17F P/Eand a discount of 22% tonormalized FY17F EV/EBITDA;although normalized RoE remainssignificantly higher.
Relative to most of its Indonesianpeers, CIL trades at a premium onboth FY17F P/E and EV/EBITDA,however, on a resources-based
valuation (at US$1.0 EV/ton ofreserves and US$0.3 EV/ton ofresources), CIL is in line with itsIndonesian peers.
M. Cap Pr ice
(US$m) (Local) FY16F FY17F FY18F FY16F FY17F FY18F FY16F FY17F FY18F FY16F FY17F FY18F
COAL INDIA
Coal India - Adj. COAL IN Buy 26,578 278.7 10.8 11.7 11.4 6.3 6.6 6.4 24.5 23.1 23.1 9.8 6.5 6.5
Coal India - Rep. COAL IN Buy 26,578 278.7 12.5 13.5 12.9 7.1 7.4 7.0 37.9 39.1 41.4 9.8 6.5 6.5 India Power Utilities
NTPC NTPC IN Buy 17,594 141.3 13.1 12.1 10.5 11.1 9.9 8.2 10.7 10.9 11.8 2.8 3.4 3.9
PWGR PWGR IN Buy 11,692 148.0 12.5 10.2 8.7 9.2 7.6 6.6 15.3 16.5 17.1 1.7 3.0 3.7
NHPC NHPC IN NR 3,929 23.5 10.1 9.6 8.5 8.1 7.8 7.0 8.2 8.1 8.9 4.6 4.3 4.8
Average 11.9 10.6 9.3 9.5 8.5 7.3 11.4 11.8 12.6 3.0 3.6 4.1
HK
Shenhua Energy-H 1088 HK NR 43,729 13.4 12.6 12.3 11.4 5.1 6.2 5.9 5.5 6.1 6.3 2.9 3.0 3.3
Yanzhou-H 1171 HK NR 6,021 4.5 NM NM NM 13.7 18.7 13.9 1.3 (1.6) (1.0) 0.3 0.1 0.4
Average 12.6 12.3 11.4 9.4 12.4 9.9 3.4 2.2 2.6 1.6 1.6 1.9
S.E.Asia
ITMG ITMG IJ NR 636 7,400 9.4 10.2 13.7 1.2 2.7 3.4 7.3 7.9 6.6 n/a 8.9 7.6
Bukit Asam PTBA IJ NR 1,332 7,600 8.1 10.8 10.2 5.9 8.0 7.2 23.2 16.0 15.9 3.8 4.6 4.4
Adaro ADRO IJ NR 1,752 720 11.5 13.7 13.7 4.6 6.1 6.1 5.4 4.1 3.7 n/a 1.8 1.8
Average 9.6 11.6 12.5 3.9 5.6 5.5 12.0 9.3 8.7 3.8 5.1 4.6
Australia
Whitehaven Coal WHC AU NR 1,011 0.8 NM NM 55.0 na 8.4 7.5 (8.2) 0.4 0.9 - - -
New Hope Corp NHC AU NR 1,542 1.5 NM 41.4 28.4 na 2.3 1.4 0.2 1.5 3.1 4.5 3.4 3.9
Average NM 41.4 41.7 na 5.3 4.5 (4.0) 1.0 2.0 2.2 1.7 2.0
Company Ticker Rating
Div yield (%)EV/EBITDAP/E ROE (%)
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Coal India – Target price build-up
Coal India – Target price build-up
Note: [1] For calculating the value of resources, we assign a value of 0.3 times probable reserves (considering 80% conversion ratio); [2] We assume WACC of12.0% for CIL | Source: Company data, Nomura estimates
We peg our 12-month TP (INR310)as the sum-of-the-parts based fairvalue of the stock
SOTP = DCF value of cash flows ofproven reserves (INR127/sh) + valueof probable reserves (INR45/sh) &resources (INR65/sh) + FY15F cashon hand (INR73/sh)
Earnings are most sensitive toblended realization and offtake.
1% change in blended realization/offtake results in a ~3% change in
EPS and 3.5-4.0% change in TP.
1% change in e-auction volumes (asa % of total raw coal sold) results in~1% change in EPS and TP for CIL.
1% change in realization of e-auctioncoal results in 0.4-0.5% change inEPS and TP
On employee cost, 1% higher wage
hike for employees results inEPS/TP being lower by 0.7%
4
CIL – Earnings and TP sensitivity to Offtake/ASP CIL – Earnings and TP sensitivity to e-auctions
Source: Nomura estimatesSource: Nomura estimates
CF from proven/probable reserves FY17F FY18F FY19F FY20F FY21F FY22F FY26F FY35F
(INR m) Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-26 Mar-35
EBITDA (Adj for provisions/Write-offs) 211,062 221,717 250,076 279,983 313,018 338,655 356,636 140,312
% grow th -4.8% 5.0% 12.8% 12.0% 11.8% 8.2% -2.4% -13.4%
Less: Adjusted taxes (65,623) (68,106) (74,716) (81,417) (90,892) (98,018) (99,294) (20,225)
NOPLAT 145,438 153,611 175,359 198,566 222,126 240,637 257,342 120,087
% grow th -4.8% 5.6% 14.2% 13.2% 11.9% 8.3% -1.8% -10.2%
Change in WC 19,105 947 (439) (4,199) (2,617) 49,766 (2,090) 16,386
Capex (INR mn) (60,500) (66,500) (64,000) (64,000) (60,000) (60,000) (60,000) (60,000)
FCF - Explicit period 104,043 88,058 110,920 130,367 159,509 230,402 195,252 76,472
Discount factor (WACC) 1.00 0.89 0.80 0.71 0.64 0.57 0.36 0.13
PV of FCFFs 104,043 78,623 88,425 92,764 101,339 130,696 70,366 9,935
Cumulative PV (FY17-35) 1,089,152
per-share Key assumptions
Net Cash (FY17F) 459,039 73 Risk free rate 7.5%
Value of proven & probable reserves 1,089,152 172 Market risk premium 5.0%
Value of resources 408,712 65 Beta 0.90
Target Price 1,497,863 310 WACC 12.0%
Se ns itivity to k ey me tr ics FY17F FY18F
Offtake
Base case 23.9 24.5 310
5-6mt higher 24.7 25.5 324
5-6mt low er 23.5 24.1 303
Sensitivity to 1% variation 2.6% 2.9% 3.4%
Sensitivity to 1mt variation 0.5% 0.6% 0.7%
Blende d ASP
Base case 23.9 24.5 310
+1% change 24.6 25.3 322
-1% change 23.2 23.8 298
Sensitivity to 1% variation (%) 2.9% 3.1% 3.9%
Fair Value
(INR/sh)
Adj. EPS (INR/sh)
Sens itivity to key metr ics FY17F FY18F
E-auction coal (% of raw coal sold)
Base case 23.9 24.5 310
+1% change 24.1 24.8 313 -1% change 23.6 24.3 307
Sensitivity to 1% variation (%) 1.0% 1.0% 1.0%
Realization of e-auction coal
Base case 23.9 24.5 310
+5% change 24.5 25.1 316
-5% change 23.3 23.9 304
Sensitivity to 1% variation 0.5% 0.5% 0.4%
Fair Value
(INR/sh)
Adj. EPS (INR/sh)
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Coal India – Key assumptions / metrics
Note: [1] Cash cost of production = Total opex less provision/write-offs and OB removal adjustment , [2] Cost metrics calculated on production whereas realization/EBITDA/PAT is calculated on offtake, [3] INR/USD taken as 66.5 from FY17F onwards
Source: Company data, Nomura estimates
FY16 production/offtake was536.5mt/532.3mt (+8.6%/+8.8% y-y).
Based on demand/supply dynamicsfor domestic coal in the near term,we build in lower 4.5% y-y growth inproduction 6% y-y growth in offtakefor FY17F.
We expect production to grow from537mt in FY16 to 710mt in FY20Fand offtake to grow from 532mt inFY16 to 711mt in FY20F, implying aCAGR of 7.4%/7.6% over this period.
We expect a 1% CAGR in blendedrealization over this period, drivenlargely by our assumed price hike in1HFY17.
5
CAGR
FY15 FY16F FY17F FY18F FY15 FY16F FY17F FY18F FY15-18F
KEY PHYSICAL METRICS
Production mt 494.2 536.5 560.7 602.7 6.9% 8.6% 4.5% 7.5% 6.8%
Offtake mt 489.4 532.3 564.1 609.2 3.8% 8.8% 6.0% 8.0% 7.6%
Inventory mt 54.2 58.4 55.0 48.4 9.9% 7.8% -6.0% -11.9% -3.7%
KEY OPERATING METRICS
Blended Realization INR/ton 1,470 1,413 1,421 1,437 0.7% -3.9% 0.6% 1.1% -0.7%
Cash cost INR/ton 1,051 1,031 1,096 1,128 0.4% -1.9% 6.3% 2.9% 2.4%
Cost of production
Reported INR/ton 1,149 1,099 1,154 1,181 0.5% -4.4% 5.1% 2.3% 0.9%
Adjusted INR/ton 1,072 1,055 1,117 1,150 0.0% -1.6% 5.9% 2.9% 2.4%
EBITDA
Reported INR/ton 354 349 316 312 4.4% -1.4% -9.3% -1.6% -4.2%
Adjusted INR/ton 432 393 353 342 -3.0% -9.0% -10.2% -3.2% -7.5%
Net Profit
Reported INR/ton 280 264 231 224 -12.5% -5.9% -12.6% -2.9% -7.2% Adjusted INR/ton 358 308 268 255 -8.6% -14.0% -13.1% -4.8% -10.7%
KEY OPERATING METRICS (USD)
Realization USD/ton 23.5 21.3 21.4 21.6 -3.5% -9.3% 0.2% 1.1% -2.8%
Cash cost USD/ton 16.8 15.6 16.5 17.0 -3.8% -7.5% 5.9% 2.9% 0.3%
Cost of production
Reported USD/ton 18.4 16.6 17.4 17.8 -3.7% -9.8% 4.7% 2.3% -1.1%
Adjusted USD/ton 17.1 15.9 16.8 17.3 -4.2% -7.1% 5.5% 2.9% 0.3%
EBITDA
Reported USD/ton 5.7 5.3 4.8 4.7 0.1% -7.0% -9.6% -1.6% -6.1%
Adjusted USD/ton 6.9 5.9 5.3 5.1 -7.0% -14.1% -10.5% -3.2% -9.4%
Net Profit
Reported USD/ton 4.5 4.0 3.5 3.4 -16.1% -11.3% -12.9% -2.9% -9.1% Adjusted USD/ton 5.7 4.6 4.0 3.8 -12.4% -18.9% -13.4% -4.8% -12.6%
UnitKey metrics YoY growth
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Coal India – Production roadmap up to FY20
CIL’s five year roadmap – Envisagedproduction in FY20 = 908mt; balance92mt to come from new projects to beidentified over the next 2-3 years. Output
growth is back-ended (17% y-y growthpegged in FY19F/FY20F). MCL andSECL to contribute ~60% of productionincrease between FY15-20.
Pre-requisites – Enhanced and timelyavailability of rail links and evacuationcapacity (rakes), facilitation of landacquisition/possession (incl. R&R),streamlining process to secure FC.
Mgmt. commentary on the roadmap – [1] Identified subsidiary-wise projectswhere evacuation is a problem and hasset continuously monitored timelines forresolving the issues, [2] Senior ex-Railway officials taken on board to createsynergies with the Railways in de-bottlenecking and boosting evacuationinfrastructure, [3] In order to achieve10% annual production growth, CILwould need annual incremental landpossession of ~2000 hectares.
What do we build into our forecast –
We assume coal production to grow from536.5mt in FY16 to 710mt in FY20F(7.4% CAGR) vs. the 14.1% CAGRimplied as per the five-year roadmap
6
CIL – production targets vs. Nomura estimates
CIL targets imply FY16-20F CAGR of 14.1%
CIL – Subsidiary wise production targets
Subsidiaries target a double-digit CAGR for FY16-20
Note: [1] Figures for North Eastern Coalfields (NEC) are not included, [2]*Adjusted for Actuals, [3] As per Ministry of Coal year-end review (Dec-2015), WCL has revised its target from 60mt to 100mt by 2020 (year-wisetargets not available)
Source: Company data, Nomura estimates, Sigma Insights
* Adjusted for Actuals | Source: Nomura estimates, Sigma Insights
Source: Company data, Nomura research
CIL – Deviation of offtake vs. CIL’s own target
FY16 offtake is 3.2% below CIL’s target
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
400
500
600
700
800
900
1,000
FY16* FY17F FY18F FY19F FY20F
CIL Target
Nomura Estimate
CIL Target (YoY)
Nomura Estimate (YoY)
mt
mt FY16* FY16E FY17E FY18E FY19E FY20E
BCCL 36 36 37 41 46 53
CCL 61 61 67 80 102 134
ECL 40 42 47 52 57 62
MCL 138 150 167 187 222 250
NCL 80 78 82 90 99 110
SECL 136 137 150 161 193 240
WCL 45 45 48 50 55 60
Total 536 549 597 661 774 908
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
-
5
10
15
20
25
30
35
A p
r ' 1 4
J u
n' 1 4
A u
' 1 4
O c t ' 1 4
D e c ' 1 4
F e
b ' 1 5
A p
r ' 1 5
J u
n' 1 5
A u
g' 1 5
O c t ' 1 5
D e c ' 1 5
F e
b ' 1 6
Deviation from Target (LHS)
Deviation as a % of Target (RHS)
mt
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Coal India – Subsidiary wise production/offtake
CIL – Monthly trend in production/offtake in FY16 Relative to CIL’s MoU-based FY16
production / offtake targets of 550mteach, actual production / offtakestood at 536.5mt / 532.3mt, implyinga shortfall of 2.5% / 3.2%. Theabsolute shortfall was 13.5mt /17.7mt.
Majority of the shortfall was seen atMCL wherein production/offtake was12mt/10mt (8.1%/6.5%) lower vs.target. ECL/WCL also contributed tothe shortfall in offtake (8.5%/6.2%lower vs. their respective targets)
Rake availability and loading pickedup significantly in FY16.
Our FY17F, production/offtake is561mt/564mt (+4.5%/+6.0% y-y), vsa target of 598mt set by the GoI.
It’s been a disappointing start toFY17 as coal production/offtake in April declined 3.4%/2.5% y-y – thefirst y-y drop in monthly volume since
January 2015
Note: Minor discrepancy between the total FY production / offtake vs. sum of individual months is potentially due to a restatement of provisional historicalnumbers by CIL | Source: Company data, Nomura research
7
CIL – Rakes availability (since 2012)
Source: Company data, Nomura research
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012 185.0 193.0 195.0 182.0 180.0 176.0 175.0 155.8 154.0 183.0 186.0 199.0
2013 210.0 209.0 220.0 201.0 184.0 187.0 189.0 176.8 182.0 169.0 190.0 200.0
y/y growth 13.5% 8.3% 12.8% 10.4% 2.2% 6.3% 8.0% 13.5% 18.2% -7.7% 2.2% 0.5%
2014 210.0 208.3 205.9 197.7 186.6 178.9 175.5 179.6 180.1 192.0 207.4 207.0
y/y growth 0.0% -0.3% -6.4% -1.6% 1.4% -4.3% -7.1% 1.6% -1.0% 13.6% 9.2% 3.5%
2015 204.5 211.9 217.3 215.0 207.0 198.2 197.0 194.0 198.0 211.0 224.0 224.0
y/y growth -2.6% 1.7% 5.5% 8.8% 10.9% 10.8% 12.3% 8.0% 9.9% 9.9% 8.0% 8.2%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Actual YoY Target Var
Coal production (mt)
ECL 5.0 3.3 3.1 2.7 2.0 1.8 2.1 2.9 3.9 4.3 4.6 4.5 5.1 40.2 0.5% 42.1 -4.6%
BCCL 3.7 3.0 3.0 2.9 2.6 2.7 2.7 2.8 2.9 3.1 3.2 3.3 3.9 35.9 3.9% 35.9 0.0%
CCL 7.5 4.8 3.9 4.0 3.6 4.3 4.3 4.9 5.9 5.9 5.7 6.2 8.0 61.4 10.3% 60.6 1.2%
NCL 9.7 5.9 6.3 6.1 5.5 5.7 5.7 6.9 6.8 7.6 8.0 7.3 8.4 80.2 10.7% 78.1 2.7%
WCL 4.7 3.4 4.0 2.9 3.0 2.5 2.6 3.6 3.9 4.5 4.5 4.8 5.3 44.8 8.9% 45.1 -0.6%
SECL 14.1 10.4 10.4 10.3 9.1 9.1 10.0 12.0 12.1 12.9 13.1 12.1 14.3 135.7 5.7% 137.0 -1.0%
MCL 12.4 10.7 10.3 10.0 9.0 10.1 9.8 11.4 12.1 13.9 13.7 12.8 14.1 137.9 13.6% 150.0 -8.1%
NEC 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.5 -37.8% 1.2 -59.8%
Total 57.3 41.5 41.0 38.8 34.8 36.2 37.2 44.4 47.5 52.1 52.9 51.0 59.2 536.5 8.6% 550.0 -2.5%
Coal offtake (mt)
ECL 4.1 3.7 3.7 3.2 2.6 2.1 2.3 2.8 3.2 3.6 3.9 3.7 4.1 38.6 0.3% 42.1 -8.5%
BCCL 3.2 3.2 3.1 2.9 2.8 2.9 2.9 2.9 2.9 3.0 3.1 3.1 3.3 36.1 7.4% 35.9 0.8%
CCL 5.8 5.0 5.0 4.8 4.7 4.9 4.7 4.8 5.2 5.2 4.9 5.0 5.4 59.6 7.7% 60.6 -1.7%
NCL 7.7 6.2 6.3 6.2 5.7 5.8 6.1 6.8 6.7 7.3 7.4 6.6 7.3 78.5 6.5% 78.1 0.5%
WCL 3.8 3.7 3.6 3.5 3.8 3.1 2.9 3.5 3.6 3.9 3.7 3.4 3.7 42.3 2.6% 45.1 -6.2%
SECL 11.3 11.1 10.9 11.0 10.7 10.1 11.0 11.9 11.9 12.4 12.1 11.3 12.3 136.6 10.9% 137.0 -0.3%
MCL 11.5 10.7 11.1 10.7 10.6 11.6 10.6 11.7 11.9 12.8 13.2 12.5 13.0 140.2 14.0% 150.0 -6.5%
NEC 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.3 -53.4% 1.2 -72.1%
Total 47.5 43.6 43.7 42.2 40.9 40.6 40.4 44.4 45.3 48.2 48.3 45.5 49.1 532.3 8.8% 550.0 -3.2%
FY16FY15 FY16
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Coal India – Linkage auction
Source: Company data, Nomura research
In June-2015, MoC issued an Approach Paper on auction of coallinkages for non-regulated sectors,linkage auctions were approved byGoI in Feb-2016. The approachpaper indicated tenure of linkages tobe 5 years.
Key points – [1] CIL has flexibility topeg reserve price based ondemand/supply. [2] No prematuretermination of existing FSA, but FSAmaturing in FY16 would not berenewed. [3] Quantity = FSAsterminating in FY16 + 25% of
incremental production of CIL/SCCL.
24mt to be auctioned in FY17;assuming CIL’s share is ~20mt (i.e.
3-4% of its total offtake). Even ifthere is a 10% variation (uptick) inrealization for this 20mt, our FY17FCIL’s earnings would rise by 1-2%.
CIL sells ~60mt coal to non-regulated sectors. We estimate avg.
price of coal sold under FSAs to thiscategory at ~INR1700/ton (~35%above RoM price to power sector).
What next on the dispatch front?
Linkage auction for power sector,supply of coal under ‘bridge linkages’
and ramping up supply of washedcoal
CIL – sector-wise coal dispatchesLinkage coal to non-regulated sectors at 60mt in FY15
CIL – Price realization by coal category
Source: Company data, Nomura estimates
CIL- Revenue realization by coal category
Source: Company data, Nomura estimates
(mt) FY11 FY12 FY13 FY14 FY15
E-auction 47.7 50.9 49.1 58.0 46.9
Linkage - Pow er 304.2 312.1 345.4 353.8 384.2
Linkage - Non-Power 72.5 70.0 71.6 59.6 58.3
Steel 9.3 4.1 4.7 3.7 3.8
Cement 10.0 6.7 6.5 5.5 5.6
Fertilizer 2.7 2.8 2.5 2.3 2.3
Others 50.6 56.4 57.9 48.2 46.7
Total 424.5 433.0 466.2 471.5 489.4
8
(Rs mn) FY15 FY16F FY17F FY18F
E-auc tion coal 114,920 116,167 109,323 110,244
Beneficiated coal 28,100 31,647 31,481 55,261
By products 11,670 13,134 11,964 12,605 FSA coal 565,456 590,564 648,193 696,758
Total revenues 720,146 751,512 800,961 874,868
% breakdown of revenues
E-auction coal 16.0 15.5 13.6 12.6
Beneficiated coal 3.9 4.2 3.9 6.3
FSA coal 78.5 78.6 80.9 79.6
By products 1.6 1.7 1.5 1.4
Total 100.0 100.0 100.0 100.0
(INR/ton) FY15 FY16F FY17F FY18F
E-auction coal 2,450 1,903 1,744 1,717
Beneficiated coal 2,348 2,302 2,298 2,876
FSA coal 1,327 1,320 1,356 1,353 Blended ASP 1,470 1,413 1,421 1,437
yoy (%)
E-auction coal 12.3 (22.3) (8.3) (1.5)
Benef ic iated coal (0.1) (2.0) (0.1) 25.1
FSA coal 1.1 (0.5) 2.7 (0.2)
Blended ASP 0.7 (3.9) 0.6 1.1
CIL- Revenue realization by coal category
20%
25%
30%
35%
40%
45%
50%
55%
10
20
30
40
50
60
FY13 FY14 FY15 FY16F FY17F FY18F
INA - Comparable Coal (US$/ton) - CIF
CIL - Gross Blended ASP (US$/ton)
CIL - Gross FSA Realization (US$/ton)
Disc. of Blended ASP to INA
Disc. of FSA ASP to INA
$/ton
Note: Calculations based on CIF prices of ex-Indonesia comparable GCVcoal at port vs. ex-mine cost of CIL coal (after adding royalties/exciseduties/levies to net realization of CIL | Source: Company data, Nomuraestimates
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Coal India – Notified pricing and grading structure
CIL – Summary of revision in coal grading and pricing mechanism
Notes: (1) Priority Sectors = power utilities (incl. IPPs), fertilizers and defence; (2) For WCL, there shall be a 10% add on overand above the price mentioned above for GCV bands not exceeding 5800 Kcal/Kg; (*) For GCV exceeding 7000 Kcal/Kg, theprice shall increase by INR150/ton over and above the price applicable for GCV band exceeding 6700Kcal/kg but less than7000 Kcal/kg, for every 100 Kcal/Kg increase in GCV. (3) An additional Rs300/ton shall be charged over and above the notifiedprice in respect of coal produced from Rajmahal mine of Eastern Coalfields Ltd
Source: Company data, Nomura research
Linkage coal price revision – WhileCIL hiked coal prices thrice in FY14,there was no hike in FY15 & FY16.During FY14, CIL’s revision of
notified prices (May 28, 2013)effectively raised price for 3400-4600GCV coal by 10%. CIL’s Dec-2013 revision of non-coking coalprices for WCL and sizing chargestogether implies an effective pricehike of ~1.5%. Pricing premium fornon-core sectors at ~35%.
For FY14/FY15, e-auction realizationwas at a 69%/87% premium to CIL’s
average realization for notified coalprices (excluding YE incentives).This realization premium has shrunkto 51% during 9MFY16.
For IPPs, at INR/USD=66.5, the CIFprice of 4,200GCV coal (ex-INA) is~INR2,900/ton, whereas ex-minecost of coal from Coal India is~INR1900/ton, implying ~35%discount.
Supply to be considered for ACQ,incentive/compensation to beadjusted for sub-3100GCV coal.
9
Grade GCV Priority Other Priority Other Priority Other
I >7000II 6,700-7,000 4,870 4,870 4,870 4,870 0.0% 0.0%
III 6,400-6,700 4,420 4,420 3,890 3,890 -12.0% -12.0%
IV 6,100-6,400 3,970 3,970 3,490 3,490 -12.1% -12.1%
V 5,800-6,100 2,800 2,800 2,800 2,800 0.0% 0.0%
VI 5,500-5,800 1,450 1,960 1,600 2,150 10.3% 9.7%
VII 5,200-5,500 1,270 1,720 1,400 1,890 10.2% 9.9%
VIII 4,900-5,200 1,140 1,540 1,250 1,690 9.6% 9.7%
IX 4,600-4,900 880 1,180 970 1,310 10.2% 11.0%
X 4,300-4,600 780 1,050 860 1,160 10.3% 10.5%
XI 4,000-4,300 640 870 700 950 9.4% 9.2%
XII 3,700-4,000 600 810 660 890 10.0% 9.9%
XIII 3,400-3,700 550 740 610 820 10.9% 10.8%
XIV 3,100-3,400 500 680 550 740 10.0% 8.8%
XV 2,800-3,100 460 620 510 680 10.9% 9.7%
XVI 2,500-2,800 410 550 450 610 9.8% 10.9%
May 28, 2013 onwardsPre-May 28, 2013 Change in Price
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Coal India – Headroom to raise low GCV coal prices
10
CIL – Discount of CIL's grade-wise coal price to comparable imported coal price (from Indonesia)
Note – For our calculations, we assume – [1] INR/USD = 66.5; [2] Royalty = 14%; Central Excise Duty + Education cess = 6.2%; [4] Clean environment cess =INR400/ton; [5] Surface transport & loading charge of INR42/ton; [6] Port handling charge of INR350/ton; [7] Customs duty of 2.58%; [8] State-specific taxesof ~5%. | Source: Nomura estimates
Grade GCV
Range
Offtake
non-coking
(FY15)
Non-
coking
coal
FoB Price
(INA coal -
HBA / Platts)
INA coal
price
(CIF)- [B]
Kcal/kg (mt) % Power Others Power Others $/mt $/mt Power Others
I >7000 0.2 0.1%
II 6,700-7,000 0.6 0.1% 4,870 4,870
III 6,400-6,700 4.7 1.1% 3,890 3,890 81.2 81.2 52.6 70.4 -15.4% -15.4%
IV 6,100-6,400 18.1 4.1% 3,490 3,490 73.6 73.6 52.3 70.0 -5.1% -5.1%
V 5,800-6,100 15.7 3.6% 2,800 2,800 60.4 60.4 44.5 62.1 2.7% 2.7%
VI 5,500-5,800 12.5 2.8% 1,600 2,150 37.5 48.0 43.1 60.6 38.2% 20.8%
VII 5,200-5,500 17.2 3.9% 1,400 1,890 33.6 43.0 43.3 60.8 44.6% 29.2%
VIII 4,900-5,200 32.4 7.4% 1,250 1,690 30.8 39.2 37.4 54.8 43.8% 28.5%
IX 4,600-4,900 54.9 12.5% 970 1,310 25.4 31.9 34.2 51.5 50.6% 38.0%
X 4,300-4,600 39.9 9.1% 860 1,160 23.3 29.1 33.5 50.7 54.0% 42.7%
XI 4,000-4,300 109.0 24.8% 700 950 20.3 25.0 26.3 43.4 53.3% 42.3%XII 3,700-4,000 76.7 17.5% 660 890 19.5 23.9 20.6 37.5 48.1% 36.3%
XIII 3,400-3,700 57.2 13.0% 610 820 18.5 22.6 17.3 34.2 45.8% 34.0%
XIV 3,100-3,400 - 0.0% 550 740 17.4 21.0 14.4 31.2 44.2% 32.6%
XV 2,800-3,100 - 0.0% 510 680 16.6 19.9 13.7 30.5 45.4% 34.7%
XVI 2,500-2,800 - 0.0% 450 610 15.5 18.5
44.6% 33.5%
CIL RoM price
(INR/mt)
CIL - Gross
Realization ($/mt)
-- [A]
Discount of CIL to
INA coal price
(1-A/B)
Average Discount --->
CIL's ex-mine coal price is at anaverage discount of 33%/45% fornon-power / power sectors vs.comparable price of INA coal.
We expect that the coal pricerationalization exercise would entaila 20-25% cut in the notified price ofhigh grade (G1-G5 grades) coal anda 10% hike in the notified price oflower grades of coal (G8-G17).
In absolute terms, this would implyan INR50-125/ton rise in notifiedprices for sub-5200GCV coal for the
power sector. In turn, this wouldtranslate into a potential INR0.04-0.08/kWh rise in the variable cost ofgeneration (2-4% rise in the totalcost of generation depending uponthe inland transportation cost + thefixed cost of the project).
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Coal India – Offtake and revenue mix
11
CIL – Offtake by coal category
Source: Company data, Nomura estimates
CIL – Premium of e-auction over FSA realization
Source: Company data, Nomura estimates
CIL – Subsidiary-wise coal inventory (mn tons)
Source: Company data, Nomura estimates
As per NCDP, e-auction salesvolume can be in the vicinity of 10%of the offtake. As per a subsequentguidance, it was suggested that the
quantum may gradually be taperedto 7% of the offtake in case there isneed to meet minimum supplycommitted under FSAs.
MoC had effectively clarified thatthere are no additional cap / riderson the sale of coal via e-auction.
Special e-auctions for both powerand non-power consumers were
being undertaken in FY16 at thebehest of the Coal Ministry.
Coal inventory stood at 58.4mt as ofFY16 (vs. 54.2mt as of FY15).
Premium of e-auction over FSA isexpected to drop to ~30% in FY17F /18F vs. 87% in FY15.
We build in an e-auction salesvolume of 61-64mtpa during FY16F-18F, implying 11-12% of offtake.
CIL – Coal despatch by mode of transport
Source: Company data, Nomura research
(mn tons) FY12 FY13 FY14 FY15
Rail 229.1 251.1 259.4 266.5
MGR 79.3 88.8 88.8 90.1
Road 113.4 115.7 112.8 122.1
Others 11.2 10.7 10.5 11.3
Total 433.0 466.2 471.5 490.0
% of total des patch
Rail 52.9 53.9 55.0 54.4
MGR 18.3 19.0 18.8 18.4
Road 26.2 24.8 23.9 24.9
Others 2.6 2.3 2.2 2.3
0
2
4
6
8
10
12
14
16
18
20
MCL CCL SECL BCCL ECL NCL WCL
FY13 FY14
FY15 FY16
FY15 FY16F FY17F FY18F
Total off take (mt) 489.4 532.3 564.1 609.2
E-auction offtake (mt) 46.9 61.1 62.7 64.2
Offtake split (%)
E-auction coal 9.6 11.6 11.2 10.7
Beneficiated coal 2.4 2.6 2.4 2.3
FSA coal 87.2 84.8 85.5 86.2
Others 0.7 0.9 0.8 0.7
Total Revenues ( INRmn) 720,146 751,512 800,961 874,868
E-auction Revenues (INRmn) 114,920 116,167 109,323 110,244
E-auction Realization (INRmn) 2,450 1,903 1,744 1,717
Revenue split (%)
E-auction coal 16.0 15.5 13.6 12.6
Beneficiated coal 3.9 4.2 3.9 6.3
FSA coal 78.5 78.6 80.9 79.6 Others 1.6 1.7 1.5 1.4
0%
20%
40%
60%
80%
100%
120%
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
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Coal India – Assessing the operating costs
12
CIL – Volume growth + price hike to help keep pre-OB EBITDA/ton stable
CIL – Employee cost to account for ~40% of sales
Source: Company data, Nomura estimates
CIL – Employee count to reduce by 3-4% annually
Source: Company data, Nomura estimates
Note: OBR = Overburden Removal Adjustment | Others = Repairs + ‘Miscellaneous expenses + Provisions/write-backs
Source: Company data, Nomura estimates
-
0.2
0.4
0.6
0.8
1.0
1.2
250
270
290
310
330
350
370
390
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Employees in '000 (LHS)
Employees per '000 ton of production
30
35
40
45
50
55
60
65
70
50
100
150
200
250
300
350
400
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Employee cost (INR bn)
% of Total Cost (RHS)
% of Revenues (RHS)
INR bn
(INR mn) FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Operating Expense s 430,537 470,174 495,603 529,580 565,890 626,416 693,214
Employee cost 263,874 273,208 279,144 298,741 295,044 332,084 363,705Social Overheads 3,176 6,224 4,094 2,981 9,239 5,717 5,437
Change in Invesntory (3,810) 4,939 927 (5,305) (5,909) 3,033 5,640
Consumption of Stores & Spares 55,041 60,621 70,221 72,564 70,894 71,861 74,934
Pow er & Fuel 20,125 23,335 22,822 23,473 24,716 25,312 26,938
Contractual Expenses 49,010 58,020 68,275 85,126 112,597 129,100 150,454
Others (Ex OBR) 43,122 43,827 50,121 51,999 59,309 59,309 66,106
Y-Y grow th (%) in Opex 17.9% 9.2% 5.4% 6.9% 6.9% 10.7% 10.7%
Employee cost 44.9% 3.5% 2.2% 7.0% -1.2% 12.6% 9.5%
Social Overheads -86.0% 96.0% -34.2% -27.2% 209.9% -38.1% -4.9%
Change in Invesntory -69.6% NM -81.2% NM 11.4% -151.3% 85.9%
Consumption of Stores & Spares 5.2% 10.1% 15.8% 3.3% -2.3% 1.4% 4.3%Pow er & Fuel 14.7% 15.9% -2.2% 2.9% 5.3% 2.4% 6.4%
Contractual Expenses 7.0% 18.4% 17.7% 24.7% 32.3% 14.7% 16.5%
Others (Ex OB Removal Adj.) -24.7% 1.6% 14.4% 3.7% 14.1% 0.0% 11.5%
Opex per ton of production 988 1,040 1,072 1,072 1,055 1,117 1,150
Employee cost 605 604 604 604 550 592 603
Social Overheads 7 14 9 6 17 10 9
Consumption of Stores & Spares 126 134 152 147 132 128 124
Pow er & Fuel 46 52 49 47 46 45 45
Contractual Expenses 112 128 148 172 210 230 250
Others (Ex OB Removal Adj.) 99 97 108 105 111 106 110
Y-Y grow th (%) in Opex/ton 16.7% 5.3% 3.1% 0.0% -1.6% 5.9% 2.9%
Employee cost 43% 0% 0% 0% -9% 8% 2%
Social Overheads -86% 89% -36% -32% 186% -41% -12%
Consumption of Stores & Spares 4% 6% 13% -3% -10% -3% -3%
Pow er & Fuel 14% 12% -4% -4% -3% -2% -1%
Contractual Expenses 6% 14% 15% 17% 22% 10% 8%
Others (Ex OB Removal Adj.) -25% -2% 12% -3% 5% -4% 4%
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CIL – Key financial metrics
13
CIL – RoE and cash (% of total assets)
Note: RoE is calculated for after adjusting for OB removal . Source:Company data, Nomura estimates
CIL – Strong operating cashflows
Source: Company data, Nomura estimates
CIL – FCF generation and yield
Source: Company data, Nomura estimates
CIL – Adjusted non-operating income at ~25% of PBT
Source: Company data, Nomura estimates
30%
34%
38%
42%
46%
50%
54%
58%
10%
15%
20%
25%
30%
35%
40%
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Normalized RoE (LHS)
Cash as % of Total Assets(RHS)
20%
22%
24%
26%
28%
30%
32%
34%
40
50
60
70
80
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Non-operating income (INR bn)
As % of PBT
INR bn
2%
4%
6%
8%
10%
12%
14%
-
50
100
150
200
250
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Free Cash Flow
FCF Yield (RHS)
INR bn
40
50
60
70
80
90
100
110
120
-
50
100
150
200
250
FY12 FY13 FY14 FY15 FY16F FY17F FY18F
Operating CF (LHS)
Capex (LHS)
Capex per ton of production (RHS)
INRbn INR/ton
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Coal India – Quarterly trend in financials
Source: Company data, Nomura research
9MFY16 vs. 9MFY15 snapshot
Revenues: Up 7.3% y-y as the 9.1%y-y rise in offtake more than offset
the 2.3% y-y drop in blendedrealization (INR1454/ton).
Margins: Pre-OBR margin posted a60bps y-y drop to 25.2% on the backof higher contractual expenses.
EBITDA/ton: Pre-OB EBITDAdropped by 4.6% to INR366/ton.
14
Qtrly - Snapshot 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 QoQ YoY 9MFY15 9MFY16 YoY
(INR mn) Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 (%) (%) Dec-14 Dec-15 (%)
Produc tion (mn tons ) 108.3 102.4 131.6 151.9 121.4 108.2 144.0 33.0% 9.4% 342.4 373.5 9.1%
Of ftake (mn tons) 119.6 110.5 124.6 134.7 129.4 122.0 137.9 13.0% 10.7% 354.7 389.3 9.8%
Realization (Rs/t) 1,488 1,419 1,426 1,490 1,465 1,390 1,376 -1.0% -3.5% 1,488 1,454 -2.3%Pre-OB EBITDA (Rs /t) 457 281 405 554 437 250 403 61.4% -0.4% 384 366 -4.6%
Reported EBITDA (Rs/t) 400 231 323 437 382 247 350 41.7% 8.1% 321 328 2.3%
Key Financials (INR m)
Revenues 183,056 161,645 183,105 213,396 195,181 174,899 195,994 12.1% 7.0% 527,805 566,074 7.3%
Employee cost (70,466) (72,866) (74,914) (80,341) (71,852) (75,304) (73,541) - 2.3% -1.8% (218,247) ( 220,697) 1.1%
Materials consumed (15,707) (16,928) (18,420) (21,510) (15,867) (16,443) (17,805) 8.3% -3.3% (51,055) (50,115) -1.8%
Power & Fuel (5,435) (5,854) (6,089) (6,095) (5,882) (6,537) (6,183) -5.4% 1.5% (17,378) (18,602) 7.0%
Contractual Expenses (17,989) (16,264) (22,825) (28,048) (24,903) (22,542) (29,615) 31.4% 29.7% (57,078) (77,061) 35.0%
Others (18,789) (18,636) (10,401) (2,740) (20,143) (23,579) (13,233) -43.9% 27.2% (47,826) (56,955) 19.1%
EBITDA (pre -OB) 54,671 31,096 50,454 74,661 56,534 30,494 55,617 82.4% 10.2% 136,221 142,644 4.7%
Margin 29.9% 19.2% 27.6% 35.0% 29.0% 17.4% 28.4% 25.8% 25.2%
OBR (6,801) (5,536) (10,179) (15,752) (7,091) (410) (7,419) NM -27.1% (22,515) (14,920) -33.7%
EBITDA ( reported) 47,870 25,560 40,276 58,909 49,442 30,084 48,198 60.2% 19.7% 113,706 127,725 12.3%
Depreciation (5,183) (5,363) (5,672) (5,999) (5,575) (5,864) (6,279) 7 .1% 10.7% (16,218) (17,718) 9.2%
EBIT 42,687 20,197 34,604 52,910 43,867 24,220 41,920 73.1% 21.1% 97,488 110,007 12.8%
Interest expenses (11) (11) (22) (29) (40) (15) (30) 95.4% 33.8% (44) (85) NM
Other Income 16,745 15,357 16,344 17,261 14,471 14,314 13,539 - 5.4% -17.2% 48,445 42,324 -12.6%
PBT 59,420 35,543 50,925 70,142 58,298 38,518 55,429 43.9% 8.8% 145,889 152,245 4.4%
Taxes (19,246) (13,668) (18,131) (27,624) (20,429) (13,328) (18,584) 39.4% 2.5% (51,044) (52,341) 2.5%
Minority Interest 1 0 - 0 0 0 0 1 0
Norm alized PAT 40,175 21,876 32,795 42,518 37,869 25,191 36,845 46.3% 12.4% 94,846 99,905 5.3%Extraordinary 158 48 (170) (133) (226) 248 337 36 359 NM
Reported PAT 40,333 21,924 32,625 42,386 37,644 25,438 37,183 46.2% 14.0% 94,882 100,264 5.7%
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Coal India – Quarterly pricing/volume metrics
Source: Company data, Nomura research
Realizations: 9MFY16 FSArealization is flat y-y, whereas e-auction prices down 21% y-y in9MFY16.
Year-end incentives: CIL securedINR13bn / INR8bn / INR7bn supply-linked incentives in FY13 / FY14 /FY15. Going forward, rising domesticcoal commitments under FSAs is arisk to this benefit. We peg FY16F /FY17F year-end incentives atINR5.6bn / INR4.2bn.
Sales mix: Absolute quantum of coal
sold via e-auction was down 19% y-yin FY15. E-auction as a % of salesstood at 11.8% in 9MFY16 vs. 9.3%in 9MFY15.
15
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 QoQ YoY 9MFY15 9MFY16 YoY
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 (%) (%) Dec-14 Dec-15 (%)
Sales volume (mt)
E-auction 16.8 10.6 5.6 13.9 16.0 14.7 15.2 2.8% 171.2% 33.0 45.9 39.1%
Beneficiated coal 3.0 2.8 3.0 3.2 3.4 3.1 3.7 16.6% 22.0% 8.7 10.2 17.0%
Notif ied (FSA) 99.2 96.1 114.7 116.0 109.0 103.0 116.4 13.0% 1.5% 310.0 328.4 5.9%
Sales Mix (%)
E-auction 14.0% 9.6% 4.5% 10.4% 12.4% 12.1% 11.1% 9.3% 11.8%
Beneficiated coal 2.5% 2.5% 2.4% 2.4% 2.6% 2.6% 2.7% 2.5% 2.6%
Notified (FSA) 82.9% 87.2% 92.4% 86.5% 84.2% 84.7% 84.9% 87.5% 84.6%
Realization ( INR/ton)
E-auction 2,246 2,496 3,134 2,386 2,184 1,788 1,866 4.4% -40.5% 2,477 1,952 -21.2%
Benef ic iated coal 2,393 2,446 2,618 1,971 2,229 2,328 2,369 1.8% -9.5% 2,487 2,310 -7.1%
Notified (FSA) 1,320 1,260 1,298 1,358 1,318 1,294 1,277 -1.3% -1.6% 1,293 1,296 0.2%
Blended (on offtake) 1,488 1,419 1,426 1,490 1,465 1,390 1,376 -1.0% -3.5% 1,488 1,454 -2.3%
Revenues (INR mn)
E-auction 37,680 26,530 17,520 33,190 34,940 26,350 28,290 7.4% 61.5% 81,730 89,580 9.6%
Benef ic iated coal 7,060 6,800 7,854 6,386 7,600 7,310 8,670 18.6% 10.4% 21,714 23,580 8.6%
Notified (FSA) 130,885 121,100 148,921 157,539 143,630 133,340 148,700 11.5% -0.1% 400,907 425,670 6.2%
Revenue Mix (%)
E-auction 21.2% 16.9% 9.9% 16.5% 18.4% 15.5% 14.9% 16.0% 16.3%
Beneficiated coal 4.0% 4.3% 4.4% 3.2% 4.0% 4.3% 4.6% 4.2% 4.3%
Notified (FSA) 73.5% 77.2% 83.8% 78.5% 75.8% 78.6% 78.4% 78.2% 77.6%
BENEFICIATED COAL SPLIT
Sales volume (mn tons)
Coking 0.5 0.5 0.6 0.5 0.4 0.5 0.6 21.4% 4.1% 1.6 1.5 -7.5%
Non Coking 2.4 2.3 2.4 2.7 3.0 2.6 3.1 -12.0% 14.8% 7.1 8.7 22.4%
Sales Mix
Coking 17.6% 17.6% 19.7% 16.4% 12.3% 16.2% 15.0% 18.3% 14.5%
Non Coking 82.4% 82.4% 80.3% 83.6% 87.7% 83.8% 85.0% 81.7% 85.5%
Realization ( INR/ton)
Coking 5,981 6,245 5,559 3,019 4,619 4,745 5,127 2.7% -24.0% 5,906 4,851 -17.9%
Non Coking 1,626 1,633 1,898 1,766 1,893 1,859 1,881 -1.8% 13.8% 1,720 1,879 9.2%
Revenues (INR mn)
Coking 3,110 3,060 3,280 1,600 1,940 2,420 2,820 24.7% -20.9% 9,450 7,180 -24.0%
Non Coking 3,950 3,740 4,574 4,786 5,660 4,890 5,850 -13.6% 30.7% 12,264 16,400 33.7%
Key Revenue
Metrics
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Coal India – Financial summary
Source: Company data, Nomura estimates | Note: Financials/Valuations are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.16
Income Statement (INR mn)
Year-end 31 Mar FY14 FY15 FY16F FY17F FY18F
Revenue 706,075 741,201 774,977 825,522 901,392
Cost of goods sold -162,245 -175,859 -202,298 -229,306 -257,966
Gross profit 543,831 565,342 572,679 596,216 643,426
SG&A -107,044 -116,445 -116,573 -112,275 -119,445
Em ployee s hare expens e -279,144 -298,741 -295,044 -332,084 -363,705
Operating profit 157,643 150,156 161,062 151,857 160,276
EBITDA 177,607 173,354 185,477 178,381 189,641
Depreciation -19,964 -23,198 -24,415 -26,524 -29,366
EBIT 157,643 150,156 161,062 151,857 160,276
Net interest expense -580 -73 -111 -77 -72
Other income 71,719 65,706 54,369 50,091 50,967
Earnings before tax 228,781 215,789 215,320 201,871 211,170
Income tax -79,074 -76,902 -75,263 -71,787 -74,769
Net profit after tax 149,708 138,888 140,057 130,084 136,401
Minority interests 0 1 0 0 0
Normalised NPAT 149,708 138,889 140,056 130,084 136,401
Extraordinary items 1,409 -1,622 359 0 0
Reported NPAT 151,117 137,267 140,415 130,084 136,401
Dividends -211,427 -154,994 -208,198 -136,773 -136,773
Transfer to reserves -60,311 -17,727 -67,783 -6,688 -372
Valuations and ratios FY14 FY15 FY16F FY17F FY18F
Reported P/E (x) 11.6 12.8 12.5 13.5 12.9
Normalised P/E (x) 11.8 12.7 12.6 13.5 12.9
FD normalis ed P/E (x) 11.8 12.7 12.6 13.5 12.9
Dividend yield (%) 10.4 7.4 9.8 6.5 6.5
Price/cashflow (x) 10.0 9.0 10.8 8.9 9.5
Price/book (x) 4.2 4.4 5.2 5.3 5.4
EV/EBITDA (x) 7.0 7.1 7.1 7.4 7.0
EV/EBIT (x) 7.9 8.2 8.2 8.7 8.3
Gross margin (%) 77.0 76.3 73.9 72.2 71.4
EBITDA margin (%) 25.2 23.4 23.9 21.6 21.0
EBIT margin (%) 22.3 20.3 20.8 18.4 17.8
Net margin (%) 21.4 18.5 18.1 15.8 15.1Effective tax rate (%) 34.6 35.6 35.0 35.6 35.4
Dividend payout (%) 139.9 112.9 148.3 105.1 100.3
ROE (%) 33.3 33.2 38.0 39.1 41.5
ROA (pretax %) 33.0 28.5 28.2 25.0 24.4
Growth (%) FY14 FY15 FY16F FY17F FY18F
Revenue 1.1 5.0 4.6 6.5 9.2
EBITDA (9.5) (2.4) 7.0 (3.8) 6.3
Normalised EPS (13.4) (7.2) 0.8 (7.1) 4.9
Normalised FDEPS (13.4) (7.2) 0.8 (7.1) 4.9
Cashflow statement (INR mn)
Year-end 31 Mar FY14 FY15 FY16F FY17F FY18F
EBITDA 177,607 173,354 185,477 178,381 189,641
Change in working capital 2,050 37,504 -2,621 39,829 19,483
Other operating cashflow -4,059 -15,555 -19,570 -21,319 -23,944
Cashflow from operations 175,598 195,302 163,287 196,892 185,181
Capital expenditure -41,482 -49,923 -50,420 -60,500 -66,500
Free cashflow 134,116 145,380 112,866 136,392 118,681
Reduction in investments -13,799 9,615 2,127 0 0
Inc in other LT liabilities 6,750 4,826 5,687 5,250 5,804
Adjustments -4,609 -982 -1,763 -1,123 -920
CF after investing acts 122,458 158 ,838 118 ,918 140 ,519 123 ,565
Cas h dividends -211,427 -154,994 -208,198 -136,773 -136,773
Debt issue -11,272 2,302 -1,818 -136 -136
Others 1,776 884 686 668 989
CF from financial acts -220,923 -151,808 -209,330 -136,240 -135,919
Net cashflow -98,465 7,030 -90,412 4,279 -12,354
Beginning cas h 622,360 523,895 530,925 440,513 444,792
Ending cash 523,895 530,925 440,513 444,792 432,438
Ending net debt -522,114 -526,842 -438,248 -442,663 -430,444
Balance Sheet (INR mn)
As at 31 Mar FY14 FY15 FY16F FY17F FY18F
Cas h & equivalents 523,895 530,925 440,513 444,792 432,438
Accounts receivable 82,410 85,219 93,463 94,576 102,046Inventories 55,681 61,838 67,440 64,310 59,141
Other current assets 124,850 154,856 148,105 159,507 173,031
Total current as sets 786,836 832,838 749,521 763,185 766,657
LT investments 37,749 28,134 26,007 26,007 26,007
Fixed assets 198,121 224,846 250,850 284,827 321,961
Tota l assets 1 ,022 ,706 1 ,085 ,818 1 ,026 ,379 1 ,074 ,019 1 ,114 ,625
Accounts payable 16,943 20,833 23,910 28,179 30,352
Other current l iabi li ti es 563,729 636 ,315 637 ,713 682 ,657 715 ,793
Total current liabilities 580,672 657,148 661,623 710,837 746,146
Long-term debt 1,781 4,083 2,265 2,129 1,994
Other LT liabilities 15,572 20,398 26,085 31,335 37,139
Total liabilities 598,026 681,629 689,973 744,301 785,279
Minority interest 636 658 659 659 659
Common stock 63,164 63,164 63,164 63,164 63,164
Retained earnings 360,881 340,367 272,584 265,896 265,524
Tota l shareho lders ' equi ty 424,045 403 ,531 335 ,748 329 ,059 328 ,687
Total equity & liabilities 1,022,706 1,085,818 1,026,379 1,074,019 1,114,625
Per share FY14 FY15 FY16F FY17F FY18F
Reported EPS (INR) 23.9 21.7 22.2 20.6 21.6
Norm EPS (INR) 23.7 22.0 22.2 20.6 21.6
BVPS (INR) 67.1 63.9 53.2 52.1 52.0
DPS (INR) 29.0 20.7 27.4 18.0 18.0
Activity (days) FY14 FY15 FY16F FY17F FY18F
Days receivable 48.4 41.3 42.2 41.6 39.8
Days inventory 125.8 122.0 116.9 104.9 87.3
Days payable 35.3 39.2 40.5 41.5 41.4
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India – Coalfields and rail/port infrastructure
India – Coalfields, ports and proposed railway freight corridors
Note: * Not operational; Opt = Operator; Eastern Dedicated Freight Corridor is from Ludhiana to Dankuni In West Bengal
Source: Coal India RHP, CPCB, Industry Sources
Focus on three arterial rail links foraugmenting coal evacuation – Tori-Shivpur-Kathotia (CCL, Jharkhand),East and East-West Corridor (SECL,
Chhattisgarh) and Jharsuguda-Barpali-Saradega + Angul-Kalinga(MCL, Odisha).
Work on these critical rail links haspicked up pace, key constraints ofland acquisition (incl. R&R) andforest clearances are beingaddressed. Evacuation capacity canbe augmented by ~250-300mtpawhen these rail links are in place.
In addition, work on 60 spur rail linesis also targeted for completion overthe next 5 years.
CIL to invest INR60bn in six railprojects – Tori-Shivapur-Hazaribagh,Mekhlaiganj-Pipawar, Jharsugdaand Sardegha, Angul and Kalinga(Orissa) Barud-Bukhdebpur andBarud-Annupur (Chhattisgarh).
CIL would also invest in: [1] build outof road infrastructure for linking themines with the proposed railwaytracks and [2] procurement of railwaywagons.
17
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Railways – Status of three trunk rail-links
Coal India – Status of three trunk rail-links (Jharkhand, Odisha, Chhattisgarh) for coal evacuation
Source: Ministry of Coal, Railways Ministry, company data, Nomura research
Feedback across channel checkssuggests that build-out of the trunkrail links (one each in Odisha,Jharkhand and Chhattisgarh) is
progressing broadly as per indicatedtimelines, suggesting incrementalevacuation capacity being availablefrom FY18 (Jharsuguda-Barpali-Saradega), FY19 (Tori-Shivpur) andFY20 (Dharamjaigarh-Kharsia)onwards.
We expect the Odisha rail link to befully operational by March 2017 andTori-Shivpur single line + East Rail
Corridor to be completed by Dec2017
18
Tori-Shivpur-Kathautia Jharsuguda-Barpali-SaradegaEast Rail Corridor (ERC)/
East West Rail Corridor (EWRC)
Location North Karanpura, Jharkhand Ib Valley, Odisha Mand-Raigarh, ChhattisgarhLength of rail link (km) 92 53 168
Evacuation Capacity (mtpa) 100 95 150
Project Cost (INR bn) 36.0 10.1 65.6
Project Segments [1] Tori-Shivpur (44km) Jharsuguda-Saradega [1] Kharsia - Dharamjaigarh (74km)
+ Dharamjaigarh - Korba (62km)
[2] Shivpur-Kathautia (48km) [2] Gevra Rd - Pendra Rd (135km)
Linked Coal Blocks Magadh, Amrapali Basundhara, Garjanbahal, Korba, Gare Pelma, Mand Raigarh
Siarmal, Kulda
Implementation ModeTori-Shivpur: Customer Deposit
(Line #1) + JV (Line #2,3)
Customer Deposit (Line #1)
JV (Line #2,3)JV
Shivpur-Kathotia: JV
Build-out Status
Tori-Shivpur: Possess ion of
24% of land from Jharkhand
Govt. was outstanding as of Dec
2015
Railw ay line up to Barpali likely to
be completed by Sep 2016.
Barpali-Saradega link likely to be
completed by 1QCY17
ERC (Phase #1): 75% of land (i.e.
all land for Kharsia-Dharamjaigarh)
in possession; construction is
underway.
Shivpur-Kathautia: Forest
Clearance (Stage II) pending
EWRC: Assessments & land
surveys underw ay, Forest
Clearance (Stage II) is WIP
Commissioning TimelineTori-Shivpur : Dec-2017
Shivpur-Kathotia : Mar-2020
Jharsuguda-Barpali : Sep-2016
Barpali-Saradega: Mar-2017
ERC (Phase #1) : Mar-2018/2019
EWRC: Mar-2019
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India – Thermal coal demand/supply balance
Demand: We expect thermal coalconsumption (demand) from utilities at682mt in FY18F, implying FY15-18FCAGR of ~7% We forecast overall
demand for thermal coal to rise to914mt in FY18 (3-yr CAGR of ~6%).
Domestic supply: We expectdomestic thermal coal supply to rise to786mt in FY18F, implying a FY15-18FCAGR of 9%. Within this, we build in109mt of supply from captive coalblocks in FY18F (vs. ~75mt in FY16).In the context of GOI’s targeted coal
production of ~1.5bn tons by FY20,
our domestic coal supply forecast isconservative.
Imports: Provisional data suggeststhermal coal imports at 136mt inFY16, down 19% YoY. We expect ahealthier pick-up in electricity andindustry demand. We forecast thermalcoal imports to rise 4% in FY17, anddecline 4% in FY18F.
Key items to monitor in assessing
the ‘demand supply gap’ – [1] Start-up of trunk rail links, [2] Uptick incaptive coal supply after leasetransfers and in the context of‘negative bids’, [3] Captive coal output
from PSUs, particularly NTPC.
India - Thermal coal demand/supply scenario
Source: CEA, Nomura estimates Note: Mar-2016 generation is tentative | Source: CEA, Nomura estimates
Note: Imports at higher GCV shown to reflect the typically higher quality of imported coal | Source: MoC, CEA, Company data, Nomura estimates
India – Grid-connected electricity requirement
Y-y growth in electricity requirement has picked up India – Coal-fired generation and PLF
PLF for coal-fired capacity remains in 60-65% range
19
30
40
50
60
70
80
90
50%
55%
60%
65%
70%
75%
80%
85%
J ul -1 0
N ov -1 0
M ar -1 1
J ul -1 1
N ov -1 1
M ar -1 2
J ul -1 2
N ov -1 2
M ar -1 3
J ul -1 3
N ov -1 3
M ar -1 4
J ul -1 4
N ov -1 4
M ar -1 5
J ul -1 5
N ov -1 5
M ar -1 6
Coal-fired Generation (bn kWh) [RHS]
Coal-fired PLF [LHS]
50,000
60,000
70,000
80,000
90,000
100,000
110,000
-10%
-5%
0%
5%
10%
15%
20%
25%
J ul -1 0
N ov -1 0
M ar -1 1
J ul -1 1
N ov -1 1
M ar -1 2
J ul -1 2
N ov -1 2
M ar -1 3
J ul -1 3
N ov -1 3
M ar -1 4
J ul -1 4
N ov -1 4
M ar -1 5
J ul -1 5
N ov -1 5
M ar -1 6
Requirement (Mn kWh) -- RHSRequirement growth (%) -- LHS
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India – Thermal coal imports and domestic supply
20Source: Ministry of Coal, ICMW, Nomura research
For FY15, overall coal imports were212mt (168mt thermal coal + 44mtcoking coal).
For FY16, provisional figuressuggests total coal import of ~180mt,of which thermal coal imports is 135-140mt. .
India – Coal supply/demand gap & imports (mt)
India’s yawning domestic coal deficit is evident
India – Coal imports by countries
~56% of coal imports are sourced from Indonesia
Source: Press Information Bureau, Ministry of Coal (Govt of India)
Coal India – Production and Offtake (mt)
Production/offtake at 537/mt/532mt in FY16
Coal production – SCCL and Captive mines (mt)
Captive coal production to rise rapidly from FY17F
Source: Company data, Nomura estimates
Source: Ministry of Coal (Govt of India)
Source: Company data, Ministry of Coal (Govt of I ndia), PIB, Nomura estimates
FY11 FY12 FY13 FY14 FY15
Total (mt) 68.9 102.8 145.8 166.9 212.1
Indonesia 35.9 55.3 82.4 101.9 118.2 Australia 15.9 27.8 30.5 34.5 47.5
South Af rica 11.2 12.2 20.3 20.6 30.7
USA 1.8 3.0 6.4 3.65 4.27
New Zealand 0.8 1.0 1.0 1.13 NA
Others 3.2 3.6 5.2 5.10 11.43
Total (INR bn) 415.5 788.4 868.5 923.3 1,045.2
FY11 FY12 FY13 FY14 FY15
Demand 656.3 696.0 772.8 739.4 787.0
Supply 524.1 535.3 568.8 572.5 608.2
CIL 424.3 432.7 463.8 471.5 489.4
SCCL 50.1 51.4 53.3 47.9 52.7
Others 49.6 51.3 51.7 53.1 66.0
Gap 132.2 160.7 204.1 166.9 178.8
Total Imports 68.9 102.8 145.8 166.6 212.1
YoY (%) -6% 49% 42% 14% 27%
350
400
450
500
550
600
650
FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY18F
Production
Offtake
20
30
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY18F
SCCL
Captive Blocks (incl. PSUs/UMPPs)
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CIL – ‘New’ Fuel Supply Agreements (FSAs)
‘New’ FSAs peg trigger level
(guaranteed coal supply) at 80% of ACQ. Within this, committed domesticcoal supply is 65% for FY14/FY15,
67% for FY16 and 75% from FY17onwards; balance to be made up viaimports.
The tenure of the FSA is the earlier of‘20 years or life of the project’ ; areview is possible by either party oncompletion of 5 years of the FSA.
Drawdown of coal under the FSA (i.e.the effective ACQ) is linked to the
proportion of offtake (net) under longterm PPAs with Discoms (directly, orvia PTCs), grossed-up by 10%.Minimum tenure of a long-term PPA ispegged at 7 years.
Purchaser (IPP or state/centralGenco) can modify the proportion ofcapacity tied-up in long-term PPAs, ifrequired, only once a year.
CIL has the right to reset penalty
levels pursuant to fresh directives bythe government (MoC).
Fuel supply agreements (FSAs) for power companies – what’s new?
Source: Company data, Nomura research
Penalty structure in FSAs (FY14-15) – Old vs. New
Source: Company data, Nomura research
Sh o rt fa l l (f r om tr i g ger l ev el ) Im p l i ed Ra ng e P en a lt y ( %)
15% and 20% and 25% and 30% less than 50% 40.0
Excess (b eyon d tr igg er l evel ) Ran ge Incen t i ve (%)
5% and 10% above 100% 40.0
Sh o rt fa l l (f r om tr i g ger l ev el ) Im p l i ed Ra ng e P en a lt y ( %)
5% and 10% less than 80% 40.0
Excess (b eyon d tr igg er l evel ) Ran ge Incen t i ve (%)
5% and 10% above 100% 40.0
Proposed FSA with Trigger level at 80% of ACQ
Pre-FY10 FSAs with Trigger leve l at 90% of ACQ
New FSAs – Committed coal supply mix
Notes: * FY17 onwards; ACQ = Annual Contracted Quantity; actual deliveries =actual quantity including coal offered from imported coal but not accepted
FY14 total coking + non-coking coal import stood at ~167mt as per ICMW
Source: Company data, Nomura research
Clause FSAs (for projects commissioned post March 31, 2009) FSAs (for projects commissioned by March 31, 2009)
Force Additional clauses covering third-party operational risk Traditional conditionalities included…
Majeure - Law & Order problem affecting coal production / transport - Flood, mine fire, civil disturbance
- Failure of supply of power f rom Power Supplier (s) - Industry wide st rikes, epidemic
Side Agreement for import of coal has separate clauses - Delays on part of Government, logistics constraints
Imported - IPP to confirm upfront acceptance/surrender of imported coal - Any additional cost to be borne by buyers
Coal - IPP may rev iew its options, but w ith at least a 3-mth notice
- Price = Landed imported coal price + CIL's services charge
- Supply at project site
- For ACQ, 1mt of imported coal = 1.5mt of domestic coal
Long-term - Draw down of coal only for capacity linked to long-term PPAs - PPA for not less than 50% of installed capacity
PPA - ACQ = 110% of net capacity tied-up in long-term PPAs - Drawdown of coal not linked to long-term PPA capacity
- Certification (from Regulator) of sale to discom, is required
Penalty - Graded structure, but distinct for imported/domestic coal - Graded structure
Structure - Minimum (trigger) level is
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New FSAs – Side Agreement for Import of Coal
22
In relation to coal imports, the ‘Side
Agreement’ safeguards CIL’s
payment risks and covers itsintermediating costs by imposing a
‘service charge’
For assessing supply obligations, 1ton of imported coal = 1.5ton ofdomestic coal
Penalty = Quantum of shortfall *graded penalty level * correspondingprice of domestic coal
We believe the year-end incentives
are likely to diminish progressivelyfrom FY16F itself as the company isforced to divert the ‘excess’ coal for
supply under the new FSAs
CIL may supply high grade domesticcoal under FSAs with CPPs for up to25% of ACQ as part of the importedcoal supply commitment.
Up to 5% of ACQ can be offeredfrom loading points at SECL, MCL
and CCL.
Salient Features of Side Agreement for import of coal
Source: Company data, Nomura research
Clause Explanation
Delivery Point Power plant for w hich coal is consigned.
Applicable Laws All laws including those laws eff ected by any Province/State/Country having jurisdiction over source of
imported coal.
Obligation to accept
imported coal
Once agreed, purchaser cannot reject or not accept the coal consignment. In case of refusal, CIL has the r ight
to recover base price and all costs incurred on bringing the coal
Quantity/Quality of
Imported coal 1ton of imported coal = 1.5ton of domestic coal, for purpose of meeting quantity obligations
Weighment of Coal Weight recorded at the time of unloading at delivery point.
Price of Imported Coal Includes the Base Price (CF price + costs up to loading into railway w agons), as notif ied by CIL, and other
taxes, duties, levies and cess.
Service Charge CIL to levy 2% service charge of CIF Price plus all applicable statutory charges.
Security Deposit
(refundable)
at the rate of 6% on sum of base price and statutory charges; issued in form of a Bank guarantee within 15
days of quantity/price notification by CIL
Payment realization Currently cost plus pric ing follows. 100% payment to be made in advance by the Purchaser. Difference inprice to be paid w ithin 3 days of supplementary invoicing.
CIL – Penalty structure for supply shortfall under new FSAs
Source: Ministry of Power, Ministry of Coal, Nomura research
Supply Level of Delivery/ Lifting of Coal FY13-15 FY16
FY17
onwards
Customer opts for receiving both domestic and imported coal
Below 100% but upto 80% of ACQ NIL NIL NIL
Below 80% but upto 75% of ACQ 0-1.5
Below 75% but upto 67% of ACQ -
Below 67% but upto 65% of ACQ - -
Customer opts for receiving only domestic coalBelow 75% but upto 70% of ACQ - - 0-5
Below 70% but upto 67% of ACQ - -
Below 67% but upto 65% of ACQ - 0-2
Below 65% but upto 60% of ACQ 0-5 2-7 10-20
Below 60% but upto 55% of ACQ 5-10 7-20
Below 55% but upto 50% of ACQ 10-20
Below 50% of ACQ 20-40
5-10
20-40
Imported Coal Supply0-1.5
0-1.5
Domestic Coal Supply
20-40
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Captive coal blocks – The de-allocation saga
Since CY1993, the GOI allocated 218coal blocks for captive use to publicand private firms via 3 modes – [1] Via36 screening committees, [2] Govt
dispensation route, [3] Allocation forUMPPs (12 coal blocks).
Further, GOI allocated 17 coal blocksunder the new ‘auction’ rules (notified
in Feb-2012). Total 235 coal blockshad ~55bn tons geological reserves.40% of coal blocks allocated have enduse specified as power generation.
Of the 218 coal blocks, 23 were de-
allocated by Jun-2011 (3 wererestored back to NTPC in Jan-2013).Further, de-allocation notices weregiven to allottees of 31 coal blocks inFeb-2014.
In Sep-2014, the Supreme Court (inresponse to a PIL filed in Sep-2012 toexamine arbitrariness & legality inawarding coal blocks) ordered de-allocation for 204 coal blocks – 12coal blocks for UMPPs and 2 others
were exempted.
The producing coal blocks (53mtproduction in FY15) were given timeup to Mar 2015 to wind up operations,post which new winners (in auctions)or custodian (CIL) would operate theblocks.
Coal Blocks – Only 4 out of 46 producing/ready-to-produce coal blocks were not de-allocated by the SC
Notes: [1] Blocks highlighted in grey were exempted from de-allocation; [2] Out of the 12 coal blocks allocated for UMPPs (all exempted from de-allocation), onlytwo are currently in production | Source: Ministry of Coal, Nomura research
S No Company Name Block Name Linked project / plant Capacity PPA-tied Fuel cost Production Govt Geologica
( MW) Capacit y ( MW) p as s- th ru s tar t d at e / Pvt FY13 FY14 FY15F Re se rve s (m t
Designated end-use -- Power
1 CESC Sarisatolli Budge Budge 750 750 Yes Oct-02 P 3.1 3.0 2.8 140.5
2 DVC Barjora (North) Mejia TPS-II 500 500 Yes Mar-11 G 1.8 1.5 2.2 85.5
3 Hindalco Talabira-I CPP 750 n/a n/a Oct-03 P 2.2 2.5 2.5 22.6
4 PSEB Panchw ara Central Ropar, Bhatinda, Lehra Mohabbat 2620 2620 Yes Mar-06 G 6.9 6.0 7.0 562.0
5 Jindal Steel & Power Gare Palma IV 2 & 3 Tamnar TPP 1000 150 No Jun-07 P 5.3 6.2 6.3 246.0
6 Reliance Power * Moher & Moher Amlori Ext. Sasan UMPP 3960 3960 Yes Sep-12 P 0.2 1.7 2.0 600.0
7 WBSEB Tara (East & West) 1997 G 3.0 2.3 2.0 210.2
8 WBPDCL Pachw ara (North) Mar-14 G 0.1 4.0 125.7
9 RRVUNL Parsa (East) & Chhabra-II & Kalisindh TPP 1700 1700 Yes Feb-13 G 0.3 1.2 5.5 360.0
Kanta Basan
10 WBPDCL Barjora Bakreshw ar & Kolaghat TPS Mar-09 G 0.3 0.0 0.5 8.0
11 WBPDCL Bakreshw ar & Kolaghat TPS Aug-13 G 0.2 0.0 14.0
12 KPCL Baranj I-IV, Kiloni & Bellary TPS U-2 500 500 Yes Aug-08 G 2.5 2.5 2.5 152.5
Manora Deep
13 GVK Pow er Tokisud North Goindw al Sahib 540 540 Capped FY15F P NA 92.3
14 NTPC Pakri Barw adih Barh-II, Kudgi, Lara 3720 3720 Yes FY15F G NA 1,600.0
15 DVC Khagra Joydev Mejia TPS-II 500 500 Yes FY15F G NA 196.2
Total producing coal blocks as of FY14 22 25.6 27.3 37.3
Designated end-use -- Iron & Steel
15 Jindal Steel & Power Gare Palma IV/1 CPP Feb-99 P 6.0 6.0 6.0 124.0
16 Monnet Ispat Gare Palma IV/5 CPP Jun-04 P 0.8 0.9 1.0 126.0
17 Jayasw al Neco Gare Palma IV/4 CPP Sep-06 P 0.5 0.4 1.0 125.0
18 Prakash Industries Chotia CPP Jul-06 P 1.0 1.0 1.0 34.5
19 Sunflag Iron Steel Belgaon CPP Dec-07 P 0.2 0.1 0.2 15.3
20 Usha Martin Kathautia CPP Dec-08 P 0.6 0.8 0.8 29.8
21 Electrosteel Castings Parbatpur Coking coal block Dec-08 P 0.1 0.5 0.6 231.2
22 Sarda Energy Gare Palma IV/7 CPP Mar-09 P 1.0 1.2 1.2 156.0
23 SAIL Tasra Coking coal block Nov-09 G 0.1 0.1 0.1 285.0
24 B.S.Ispat Marki Mangli-I CPP Mar-11 P 0.1 0.1 0.1 34.3
25 Shree Virangana Steel Marki Mangli-II CPP Dec-11 P 19.0
26 Shree Virangana Steel Marki Mangli-Ill CPP May-13 P
27 Sova Ispat & Jai Balaji Ardhagram CPP Nov-12 P 0.1 0.3 0.3 243.0
Total producing coal blocks as of FY14 13 10.7 11.6 12.7
Designated end-use -- Commer cial28 ANPMDL Namchik Namphuk NA NA NA NA Apr-07 G 0.1 Ops Suspended 27.0
29 BLA Indus tries Gotitur ia (Eas t & Wes t) Gadarw ara TPS 135 47 Yes Oct-04 P 0.3 0.3 0.3 9.3
30 MPSMCL Amelia North JPVL Nigrie 1320 495 Yes Dec-13 G 0.0 1.5 101.2
31 WBMTDCL Trans Damodar Multiple (Particularly for SMEs) NA NA NA Apr-12 G 0.4 0.7 1.0 103.2
32 MPSMDC Bicharpur 0.5mtpa for linked Cement plant NA NA NA FY15F G 0.0 36.0
Total producing coal blocks as of FY14 4 0.7 1.0 2.8
Designated End use - Cement
34 Jaiprakash Associates Mandla North CPP FY15F P 0.0 195.0
35 Prism Cement Sial Ghogri CPP FY15F P 0.1 30.4
Total 37.0 39.9 52.9 6,340.5
Gangaramchak &
Gangaramchak Bhadulia
0.3 0.3 0.4
Production (mt)
Projects of WBPDCL - Bandel,
Santaldih, Sagardighi2030 2030 Yes
2310 2310 Yes
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Captive coal blocks – Progress on auctions
Post the Supreme Court’s cancellation
of erstwhile coal block allocations, GoIhas auctioned 34 coal blocks in threephases – 18 operational coal blocks inphase#1, 13 ‘ready to produce’ coal
blocks in phase#2 and 3 blocks fornon-regulated sectors in phase#3.
The total extractable reserves of the34 coal blocks are ~1.9bn tons withthe 18 operational blocks accountingfor half of it. Out of the 34 coal blocks,11 blocks have been auctioned forend-use ‘Power’ – 6 each in phase#1and 5 in phase#2.
The 11 blocks auctioned for ‘Power’have total extractable reserves of~1.2bn tons. All these blocks sawaggressive bidding in the reverse e-auctions (i.e. saw negative bid prices).
Indicative GCV of coal reserves forpower sector ranges from 3200-5400kCal/kg; typical GCV of balancecoal reserves is 3800-4000kCal/kg.
GoI had planned to auction 10 blocksfor non-regulated sectors in phase#3but only 3 of these were successfullybid in phase#3 held in Aug-2015.
8 coal blocks were lined up forauctioning in Phase#4 in Jan/Feb2016. However, auctions have beenpostponed due to lack of demand
Coal Blocks – Details of 34 coal blocks auctioned in Phase#1, #2 and #3
Source: Ministry of Coal, Nomura research | Note – JSPL’s winning bids for Gare Palma IV/2 & IV/3 and Tara coal blocks + Balco’s winning bid for Gare PalmaIV/1 coal blocks have not been accepted by the GoI (under litigation); ‘Res.’ = Reserves
Tranche Auction
Date
Coal Blocks Winner Bid Price
(Rs/ton)
Extractable
Res. (mt)
Mine plan
(mtpa)
Coal GCV
(kCal/kg)
CIL FSA price
(Rs/ton)
Power
1 14-Feb Talabira-I GMR Energy (478) 28.8 3.0 3600-4200 610-700
1 15-Feb Sarisatolli CESC (470) 83.0 3.5 3200-4800 550-970
1 16-Feb Trans Damodar Durgapur Projects (940) 48.4 1.0 3600-5800 610-1600
1 17-Feb Amelia North JPVL (712) 70.3 2.8 3600-5400 610-1400
1 18-Feb Tokisud North Essar Pow er (1,110) 52.0 2.3 3200-5800 550-1600
1 19-Feb Gare Palma IV/2 & IV/3 JSPL (108) 187.2 6.3 3200-5400 550-1400
2 4-Mar Jitpur Adani Pow er (302) 65.5 2.5 3200-4800 610-1070
2 5-Mar Mandakini-A MEML (650) 287.9 7.5 3200-6400 610-3490
2 7-Mar Tara JSPL (126) 166.9 6.0 3200-5400 610-1540
2 8-Mar Ganeshpur GMR Energy (704) 91.8 4.0 3200-4800 610-1070
2 9-Mar Utkal-C Monnet Pow er (770) 123.9 3.4 3200-4200 610-770
Non Power
1 14-Feb Sial Ghogri Reliance Cement 1,402 5.7 0.3 3600-5800 820-2150
1 15-Feb Belgaon Sunflag Iron & Steel 1,785 14.2 0.3 4800-5800 1310-21501 15-Feb Kathautia Hindalco 2,860 26.0 0.8 5400-6400 1890-3490
1 16-Feb Mandla North JP Associates 2,502 84.0 1.5 4200-5400 950-1890
1 16-Feb Marki Mangli-Ill BS Ispat 918 4.2 0.2 3600-5400 820-1890
1 17-Feb Ardhagram OCL Iron & Steel 2,302 19.3 0.4 3600-6400 820-3490
1 17-Feb Chotia Balco 3,025 24.0 1.0 3600-5800 820-2150
1 18-Feb Gare Palma IV/5 Hindalco 3,502 42.4 1.0 4200-6400 950-3490
1 19-Feb Bicharpur Ultratech Cement 3,003 29.1 0.8 3200-5800 740-2150
1 20-Feb Gare Palma IV/4 Hindalco 3,001 27.4 1.0 4200-5400 950-3490
1 21-Feb Gare Palma IV/1 Balco 1,585 126.5 6.0 3200-4200 740-950
1 22-Feb Gare Palma IV/7 Monnet Ispat 2,619 56.6 1.2 3200-4800 740-1310
2 4-Mar Brinda & Sisai Usha Martin 1,804 25.4 0.7 3200-6700 740-3890
2 4-Mar Moitra JSW Steel 1,512 29.9 1.0 3600-4800 820-1310
2 5-Mar Meral Trimula Industries 727 12.7 0.4 4200-6700 950-38902 7-Mar Dumri Hindalco 2,127 46.1 1.0 3200-6400 740-3490
2 7-Mar Nerad Malegaon Indrajit Pow er 660 10.3 0.4 3200-5400 740-1890
2 8-Mar Mandla-South Jaypee Cement 1,852 13.4 0.3 4200-5800 950-2150
2 8-Mar Gare-Palma IV/8 Ambuja Cements 2,291 11.8 1.2 3200-4800 740-1310
2 9-Mar Lohari Araanya Mines 2,438 9.0 0.2 4200-6700 950-3890
3 11-Aug Marki Mangli-I Topsw orth Urja 715 10.0 0.3 4200-4800 950-1070
3 11-Aug Bhaskarpara Crest Steel & Pow er 755 24.1 1.0 3600-6400 610-3490
3 13-Aug Majra Jaypee Cement 1,230 14.9 0.5 4200-5800 950-2150
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Captive coal blocks – Allotment to PSUs
Government of India allotted 27 coalblocks to Central & State PSUs inMarch 2015.
NTPC was allotted the five captivecoal blocks – Chhatti Bariatu, ChattiBariatu (South), Dulanga, Kerandariand Talaipalli. These coal blocks werede-allocated by the Supreme Court(SC) in September 2014.
Separately, in September 2015, theMinistry of Coal allotted theMandakini-B coal block (in Odisha,having extractable reserves of 1.2bntons) to NTPC for its proposed4000MW project in Telangana.
Coal Blocks – Details of 27 coal blocks allotted to PSUs
Source: Ministry of Coal, Nomura research
S.No. Coal Block New Allottee Prior AllotteeGeological
Reserves (m t)
Schedule-II mine s
1 Khagra Joydev DVC DVC 196.2
2 Baranj I to IV, Kiloni, Manora Deep KPCL KPCL 152.5
3 Pachhw ara Central PSPCL PSEB 562.0
4 Parsa East, Kanta Basan RRVUNL RRVUNL 360.0
5 Barjora North WBPDCL DVC 85.5
6 Barjora WBPDCL WBPDCL 8.0
7 Gangaramchak, Gangaramchak - Bhadulia WBPDCL WBPDCL 14.0
8 Tara (East) & (West) WBPDCL WBSEB 210.2
9 Pachhw ara North WBPDCL WBPDCL 125.7
Schedule-III mine s
1 Badam Bihar Genco Tenughat Vidyut 144.6
2 Gare Palma Sector III CSPGCL GIDC 210.2
3 Gidhmuri, Paturia CSPGCL Chhattisgarh SEB 80.3
4 Gare Palma Sector I GSECL CMDC 900.0
5 Banhardih JUUNL JSEB 400.0
6 Gare Palma Sector II Mahagenco MSMC & TNSEB 768.0
7 Kerandari NTPC NTPC 229.0
8 Talaipalli NTPC NTPC 965.0
9 Chatti Bariatu, Chatti Bariatu South NTPC NTPC 597.0
10 Dulanga NTPC NTPC 260.0
11 Manoharpur, Dipside Manoharpur OCPL OPCL 531.7
12 Parsa RRVUNL Chhattisgarh SEB 150.0
13 Rajbar E & D Tenughat Vidyut Tenughat Vidyut 385.0
14 Tadicherla - I TGenco APGenco 61.3
15 Naini SCCL GMDC & PIPDICL 500.0
16 Sitanala SAIL SAIL 108.8 17 Saharpur Jamarpani UPRUVNL DVC 600.0
18 Kasta (East) WBPDCL DVC 105.0
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Captive coal blocks – Block Linkages
‘Bridge Linkage’ is a short-term coallinkage (for a period of up to threeyears) to meet the coal requirement ofeligible Central / State owned power
plants until coal is available from theirrespective linked/allotted coalmine/block.
Coal will be supplied by CIL on a ‘besteffort basis’ after meeting existingcontractual obligations. CIL shallendeavor to supply 75% of 'AgreedRequirement' of coal, i.e., 90% ofnormative coal requirement of theplant at 85% PLF.
So far, 19 Central/State owned powerplants with an aggregate capacity of24.6GW have been granted BridgeLinkage.
At 60% utilization level, annualizedcoal requirement of this capacity is~90mt. However, if the power plantsstart generation as per indicatedtimeline, potential demand for coalwould be 20-45mt/yr over the next
three years.
Coal India – 24.6GW of PSU capacity has granted coal supply under ‘Block Linkage’
Source: Ministry of Coal, Nomura research
26
Plant Name Captive Coal Block Scheduled Start Unit 1 Unit 2 Unit 3
NTPC Kudgi - I 3x800 2,400 Bhalumuda Jun-21 Apr-16 Jul-16 Jan-17
Barh-II 2x660 1,320 Chatti Bariatu & Chatti Bariatu (South) Nov-19 Nov-14 Feb-16
Tanda-II 2x660 1,320 Kerandari Nov-19 Sep-18 Mar-19
Barethi 4x660 2,640 Banai coal block May-20 2019-20
Lara 2x800 1,600 Talaipalli Nov-19 Dec-16 Jun-17
Darlipalli 2x800 1,600 Dulanga Nov-19 Feb-18 Aug-18
Bilhaur 2x660 1,320 Kudanali-Luburi Aug-22 2019-20
Total (NTPC) 12,200
UPRVUNL Obra C 2x660 1,320 Saharpur-Jamarpani Jun-20 Sep-20
Panki 1x660 660 Saharpur-Jamarpani Jun-20 Sep-20
Jawaharpur 2x660 1,320 Saharpur-Jamarpani Jun-20 Apr-20
Harduaganj 1x660 660 Saharpur-Jamarpani Jun-20 Sep-19
OPGCL IB Thermal 2x660 1,320 Manoharpur & Dipside of Manoharpur Mar-19 Mar-18
KPCL Bellary Unit 3 1x700 700 Deocha Pachami Dewanganj - Harinsingha Jan-21 Mar-16
Yermarus 2x800 1,600 Deocha Pachami Dewanganj - Harinsingha Jan-21 Mar-16 May-16
CSPGCL Marwa 2x500 1,000 Gare Palma - III May-19 Mar-16 May-16
TSPGCL Kakatiya 1x600 600 Tadicherla - I 2018-19 Oct-15 Synchronized
Mahagenco Koradi 3x660 1,980 Gare Palma - II Apr-19 Dec-15 Mar-16 Jun-16
Chandrapur (U8,9) 2x500 1,000 Gare Palma - II Apr-19 Mar-16 Apr-16
Parli (U8) 1x250 250 Gare Palma - II Apr-19 Mar-16
Total (State Gencos) 12,410
Grant Total 24,610
Indicated start-up of power plant
Capacity (MW)
Source: Ministry of Coal, Nomura research
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New FSAs – Eligible Power Generation Capacity
Eligible generation capacity + coal requirement as per the FSAs In February 2012 and June 2013, theGOI ministries shortlisted powerprojects which were to be eligible forsecuring FSAs with CIL.