Strong performance in Q3 adds fuel to Coal India Limited's stock

Coal India Limited’s (CIL) October-December quarter of financial year 2023-24 (Q3FY24) results have beaten the Street’s estimates. Revenue rose 3 per cent year-on-year (Y-o-Y) to Rs 36,200 crore, led by higher volumes and better realisation from Fuel-Supply Agreement (FSA) coal. The blended average selling price (ASP) was down 6 per cent Y-o-Y to Rs 1,727 per tonne, and the FSA ASP was up 3 per cent Y-o-Y to Rs 1,532 per tonne.

The e-auction ASP declined 34 per cent Y-o-Y to Rs 3,321 per tonne, which was at a premium of 117 per cent over FSA. The e-auction premium moves in tandem with international coal prices and it has risen from a premium of 83 per cent over FSA in Q2FY24. The e-auction premium is likely to moderate to around 108 per cent in Q4FY24.
 

The adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda, adjusted for overburden removal or OBR costs) increased 6 per cent Y-o-Y to Rs 11,900 crore owing to lower-than-expected employee and input costs, which was partially offset by an increase in contractual expenses. Ignoring OBR, Ebitda rose 10 per cent Y-o-Y to Rs 11,300 crore.
 

Adjusted profit after tax (PAT) increased 17 per cent Y-o-Y to Rs 9,100 crore, driven by a strong operating performance and lower depreciation. CIL declared a second interim dividend of Rs 5.25 per share for FY24, taking total declared dividend to Rs 20.5 per share.
 

Production rose 11 per cent Y-o-Y to 199 million tonnes (mt) and sales (dispatches) grew 9 per cent Y-o-Y to 191 mt. Dispatches to the power sector stood at 171 mt in Q3FY24, which represented 89 per cent of the dispatches.
 

The revenue for first nine months (9M) of FY24 stood at Rs 1.05 trillion (up 5 per cent Y-o-Y); Adjusted Ebitda stood at Rs 32,000 crore (flat Y-o-Y) and adjusted PAT was Rs 23,800 crore (up 5 per cent Y-o-Y). The production for 9MFY24 was at 532 mt (up 11 per cent Y-o-Y) and dispatches were at 552 mt (up 9 per cent Y-o-Y).
 

To meet increasing coal requirements of the power sector, CIL has made long-term commitments. It is on track to achieve a production of 780 mt in FY24 with dispatches under e-auction at about 15 per cent of the total volumes.
 

India is lagging behind in its FY30 renewables capacity target, and the power ministry has set the FY24 electricity generation target at 1,750 billion units (bu) (growth of 7.2 per cent Y-o-Y) with the thermal segment contributing over 75 per cent. Given that 26.7 Gw of new thermal capacity is under construction, another 25 Gw of projects under various stages of tendering, and another 30 Gw under planning, the demand for coal for power generation will grow steadily.
 

The e-auction per tonne prices have softened from a high of Rs 5,046 in Q3FY23 to Rs 3,321 in Q3FY24, due to moderation in international prices. Currently, commodity traders believe prices have bottomed and may consolidate and stabilise. Hence, there’s an upside to e-auction prices.
 

The CIL stock, which scaled to a 52-week high of Rs 468.50 last Friday, gained 4.5 per cent on Tuesday to close at Rs 452.40. A majority of analysts believe there is an upside from current levels. According to Bloomberg, 7 of 9 analysts polled after Q3 results are bullish, and one each are ‘neutral’ and ‘bearish’. 
 

Their average target price is Rs 481. The stock continues to offer handsome dividends with a current yield of above 4 per cent.