Coal India: All-round strength

A spurt in volumes, coupled with firm prices and rising demand, augurs well for the company

Coal India, which completed its initial public offer (IPO) in November 2010, trades 32.25 per cent higher than the issue price of Rs240. With total resources of 64,786 million tonnes as on April 1, 2010, the company has around six per cent of global proven reserves and is scouting for assets abroad. Prabhudas Lilladher’s reports in November had indicated the company was moving at a swift pace towards acquiring three Australia-based mines with reserves of 200 million tonnes.

The coal deficit in India has been widening significantly. India’s coal demand for 2009-10 stood at 600 million tonnes, while domestic availability was 532 million tonnes. According to the reports, while the total demand in India is anticipated to grow at a compounded annual rate of 8.9 per cent during FY11-17, led by power, steel and cement sectors, the growth in domestic supplies will lag, growing 7.2 per cent in the period. Thus, the gap between domestic demand and supply, which stood at 68 mt in 2009-10, will widen to 224 mt in 2016-17.

The company stands to gain from rising prices. During the first half of the current financial year, average realisations increased 14 per cent year-on-year to around Rs1,190 a tonne (Rs1,193 a tonne in the June quarter and Rs1,186 a tonne in the September quarter). This drove revenues, in spite of subdued volumes due to seasonal factors. Revenues for the first half grew a robust 17 per cent year-on-year to Rs22,525.50 crore.

Coal India is likely to have a better second half compared to the monsoon-affected first half. While volumes are set to increase, realisation should improve as coal prices are on an upward trajectory. Analysts estimate revenues at Rs50,939.9 crore for 2010-11, growing 10 per cent year-on-year, with profits rising in tandem to Rs10,598.6 crore.

The stock, at Rs317.4, trades 18.3 times 2010-11 and 15.7 times 2011-12 estimated earnings.