4QFY2013 Result Update | Mining

May 30, 2013

Coal India
Performance Highlights
Quarterly highlights (Consolidated) Y/E March (` cr) Total operating income EBITDA EBITDA margin (%) Adjusted PAT 4QFY13 19,905 7,490 37.6 5,436 4QFY12 19,419 6,262 32.2 5,968 % chg (yoy) 2.5 19.6 538bp (8.9) 3QFY13 17,325 5,395 31.1 4,413 % chg (qoq) 14.9 38.8 648bp 23.2

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Mining 205,945 (63,230) 0.7 386/291 232,326 10 19,985 6,051 COAL.BO COAL@IN

`328 `343
12 Months

Source: Company, Angel Research

Coal Indias (CIL) 4QFY2013 results were above our expectations on account of higher-than-expected sales volumes. We maintain our Accumulate rating on the stock. Higher volumes aided net sales growth: CILs 4QFY2013 net sales grew by 2.5% yoy to `19,905cr due to higher volumes. Sales volumes stood at 130mn tonne, indicating the companys focus on increasing offtake. Realizations were however flat yoy but grew 6.4% qoq to `1,531/tonne. Lower staff costs and social overheads boost EBITDA: The companys EBITDA increased by 19.6% yoy to `7,490cr, mainly due to lower employee costs and social overheads. However, the other income declined by 5.2% yoy to `2,207cr and the tax rate also jumped to 28.0% in 4QFY2013 compared to 22.5% in 4QFY2012. Hence the adjusted net profit declined by 8.9% yoy to `5,436cr (above our estimate of `4,376cr). Outlook and valuation: CILs stock price has underperformed over the past one year on news flows related to further divestment in CIL by the government. However, CIL has demonstrated strong pricing power by increasing prices of coal to offset rising costs (including price hike taken in 4QFY2013). On the price pooling front, we expect the same to be revenue-neutral for CIL in case it imports coal to meet the demand of power producers. Hence, valuing the stock at 6.5x FY2015E EV/EBITDA, we derive a target price of `343 and maintain our Accumulate rating on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 90.0 2.0 5.5 2.5

Abs. (%) Sensex CIL

3m 6.0 5.1

1yr 23.2 1.4

3yr 17.9 -

Note: Coal India was listed on Nov. 4, 2010

FY2012 62,415 24.3 14,792 36.1 23.4 33.4 14.0 5.1 40.1 23.0 2.4 7.1

FY2013E 68,303 9.4 17,357 17.3 27.5 32.5 11.9 3.9 40.2 22.8 2.1 6.4

FY2014E 71,917 5.3 18,307 5.5 29.0 32.8 11.3 3.2 37.4 22.4 1.8 5.6

FY2015E 74,170 3.1 19,085 4.2 30.2 31.3 10.9 2.7 34.6 20.3 1.7 5.3

Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357600 Ext: 6841 vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

Coal India | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance (Consolidated)

Particulars (` cr) Net sales Raw material % of net sales Staff cost % of net sales Power & Fuel % of net sales Social Overhead % of net sales Contractual Expenses % of net sales Overburden removal adj. % of net sales Other Expenses % of net sales Total expenditure % of net sales Operating profit OPM(%) Other operating income EBIDTA EBITDA margins (%) Interest Depreciation Other income Provisions Exceptional items Profit before tax % of net sales Tax % of PBT Rep. Net income % of net sales Adjusted net income
Source: Company, Angel Research

4QFY13 19,905 1,160 5.8 7,469 37.5 572 2.9 49 0.2 1,990 10.0 888 4.5 824 4.1 12,952 65.1 7,490 37.6 0 7,490 37.6 13 470 2,207 483 22 8,753 44.0 2,451 28.0 5,414 27.2 5,436

4QFY12 19,419 475 2.4 9,069 46.7 529 2.7 475 2.4 1,582 8.1 1,909 9.8 750 3.9 14,789 76.2 6,262 32.2 0 6,262 32.2 18 410 2,328 568 46 7,639 39.3 1,722 22.5 5,917 30.5 5,968

yoy % 2.5 144.1 (17.6) 8.1 (89.7) 25.8 (53.5) 9.8 (12.4) 19.6

3QFY13 17,325 1,819 10.5 6,305 36.4 687 4.0 735 4.2 1,486 8.6 904 5.2 730 4.2 12,666 73.1 5,395 31.1 0

qoq % 14.9 (36.2) 18.5 (16.8) (93.4) 34.0 (1.8) 12.8 2.3 38.8

FY2013 68,303 6,556 9.6 27,321 40.0 2,333 3.4 1,445 2.1 5,802 8.5 3,202 4.7 2,633 3.9 46,089 67.5 22,213 32.5 0

FY2012 62,415 5,123 8.2 25,254 40.5 2,013 3.2 1,451 2.3 4,901 7.9 3,694 5.9 2,842 4.6 41,581 66.6 20,835 33.4 0 20,835 33.4 54.0 1,969 7,537 1,470 73 21,258 34.1 6,479 30.5 14,792 23.7 14,853

yoy % (8.6) (21.9) (7.6) (13.8) 0.5 (15.5) 15.4 7.9 (9.8) (6.2)

19.6 (31.2) 14.5 (5.2) (15.0) (52.8) 14.6 42.3 (8.5) (8.9)

5,395 31.1 10 420 2,360 200 15 7,141 41.2 1,839 25.7 4,398 25.4 4,413

38.8 32.5 11.7 (6.5) 141.3 43.6 22.6 33.3 23.1 23.2

22,213 32.5 45 1,813 8,747 927 7 24,980 36.6 7,623 30.5 17,357 25.4 17,364

(6.2) 19.5 8.6 (13.8) 58.5 966.9 (14.9) (15.0) (14.8) (14.5)

Exhibit 2: 4QFY2013 Actual vs Angel estimates

(` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT
Source: Company, Angel Research

Actual 19,905 7,490 37.6 5,436

Estimates 18,918 4,521 23.9 4,376

Variation (%) 5.2 65.6 1,373bp 24.2

May 30, 2013

Coal India | 4QFY2013 Result Update

Result highlights
Higher volumes aid net sales growth
CILs 4QFY2013 net sales grew by 2.5% yoy to `19,905cr due to higher volumes. Sales volumes stood at 130mn tonne, indicating the companys focus on increasing offtake. Realizations were flat yoy, but grew 6.4% qoq to `1,531/tonne.

Exhibit 3: Sales volumes stood at 130mn tonne...

140
120 110 123 113 120 102

Exhibit 4: ...while realization stood at `1,531/tonne

130
1,600 1,550 1,500 1,450

1,585
1,461

1,531 1,434 1,438

(mn tonnes)

80
60 40

( ` /tonne)

100

94

1,403

1,400
1,350 1,300

1,392

20
0

1,250

2QFY13

3QFY13

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

Sales volumes

4QFY13

Average realization

Source: Company, Angel Research

Source: Company, Angel Research

Lower staff costs and social overheads boost EBITDA

The companys EBITDA increased by 19.6% yoy to `7,490cr, mainly due to lower employee costs and social overheads. However, the other income declined by 5.2% yoy to `2,207cr and tax rate also jumped to 28.0% in 4QFY2013 compared to 22.5% in 4QFY2012. Hence the adjusted net profit declined by 8.9% yoy to `5,436cr (above our estimate of `4,376cr).

May 30, 2013

4QFY13

2QFY12

3QFY12

4QFY12

1QFY13

Coal India | 4QFY2013 Result Update

Investment rationale
Production and off-take to pick up
During FY2013, CILs off-take grew by 5.2% due to higher rakes availability and evacuation of inventory at pitheads. The company has taken several initiatives to improve its production. We expect Coal India to significantly ramp up its off-take by FY2015E. Given the rising demand-supply gap for coal in India, we expect government to ease some of the environmental constraints which will drive CILs production as well.

Exhibit 5: Volumes to pick up in FY2015E

520 500
(mn tonnes)
480 460 442 440 420 400 FY2012
Source: Company, Angel Research

510
484 465

FY2013

FY2014E

FY2015E

GCV-based pricing to offset high staff costs

CILs realizations shifted to gross calorific value (GCV) based pricing mechanism during January 2012 which has resulted in higher realizations during FY2013. During 4QFY2013, CIL has taken price hikes to offset the increase in costs on the back of higher diesel prices. Going forward, given its monopoly over coal supply, we believe CIL remains well-poised to pass on the rise in costs to its customers, especially considering coals demand-supply mismatch in India.

May 30, 2013

Coal India | 4QFY2013 Result Update

Exhibit 6: CILs pricing trend

1,550 1,500
1,450 1,453 1,521

1,500

(` /tonne)

1,400 1,350 1,300 1,250 1,200 FY2012 FY2013 FY2014E FY2015E 1,331

Source: Company, Angel Research

May 30, 2013

Coal India | 4QFY2013 Result Update

Outlook and valuation

CILs stock price has under-performed over the past one year on back of news flows related to further divestment in CIL by the government. However, CIL has demonstrated strong pricing power by increasing prices of coal to offset rising costs (including price hike taken in 4QFY2013). On the price pooling front, we expect price pooling to be revenue-neutral for CIL in case it imports coal to meet the demand of power producers. Hence, valuing the stock at 6.5x FY2015E EV/EBITDA, we derive a target price of `343 and maintain our Accumulate rating on the stock.

Exhibit 7: EPS Angel forecast vs consensus (Consolidated)

Year (`) FY2014E FY2015E
Source: Bloomberg, Angel Research

Angel forecast 29.0 30.2

Bloomberg consensus

Variation (%)

29.2 32.1

(0.7) (5.9)

Exhibit 8: Recommendation summary

Companies CMP Target Reco. Mcap Upside (` cr) (%) P/E (x) FY14E FY15E P/BV (x) FY14E FY15E EV/EBITDA (x) FY14E FY15E RoE (%) FY14E FY15E RoCE (%) FY14E FY15E (`) price (`)

NMDC Coal India MOIL

119 328 202

155 343 248

Buy Accum. Buy

47,695 205,945 3,361

31 5 23

7.9 11.3 7.5

7.3 10.9 7.0

1.4 3.2 1.1

1.2 2.7 1.0

3.7 5.6 2.1

3.1 5.3 1.5

18.9 37.4 15.4

17.7 34.6 14.7

20.8 22.4 14.5

21.0 20.3 13.7

Source: Company, Angel Research

Company background
Coal India (CIL), a Navratna company, is the largest coal producing company in the world, based on its raw coal production (436mn tonne in FY2012). The company is also the largest coal reserve holder in the world, based on its reserve base (18bn tonne). The company caters to large thermal power generation companies, steel and cement producers and other industrial companies in the public and private sector.

May 30, 2013

Coal India | 4QFY2013 Result Update

Profit & loss statement (Consolidated)

Y/E March (` cr) Net sales Other operating income Total operating income % chg Total expenditure Other mfg costs Personnel Other EBITDA % chg (% of Net sales) Depreciation EBIT % chg (% of Net sales) Interest charges Other income (% of PBT) Provision Recurring PBT % chg Extra. Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) % chg (% of Net sales) Basic EPS (`) Fully diluted EPS (`) % chg FY2010 44,615 44,615 9.3 30,816 6,053 16,656 8,107 13,798 186.3 30.9 1,329 9,414 889.1 21.1 89 4,901 34.4 209 14,228 141.7 (54) 13,965 4,342 31.1 9,834 142.1 22.0 15.6 15.6 142.1 FY2011 50,229 50,229 12.6 33,554 5,807 18,932 8,815 16,676 20.9 33.2 1,765 12,292 30.6 24.5 74 4,872 28.5 579 17,091 20.1 (58) 16,454 5,592 34.0 10,869 10.5 21.6 17.2 17.2 10.3 FY2012 62,415 62,415 24.3 41,584 7,136 25,254 9,195 20,835 24.9 33.4 1,969 15,172 23.4 24.3 54 7,537 33.3 1,470 22,655 32.6 (73.4) 21,258 6,479 30.5 14,792 36.1 23.7 23.4 23.4 36.1 FY2013E 68,303 68,303 9.4 46,090 8,890 27,321 9,880 22,213 6.6 32.5 1,813 17,199 13.4 25.2 45 8,747 33.8 927 25,900 14.3 (6.9) 24,980 7,623 30.5 17,357 17.3 25.4 27.5 27.5 17.3 FY2014E 71,917 71,917 5.3 48,304 10,051 27,366 10,888 23,612 6.3 32.8 1,679 18,176 5.7 25.3 38 8,937 33.0 1,248 27,075 4.5 25,827 7,519 29.1 18,307 5.5 25.5 29.0 29.0 5.5 FY2015E 74,170 74,170 3.1 50,980 10,310 27,913 12,757 23,190 (1.8) 31.3 1,763 17,719 (2.5) 23.9 40 10,532 37.3 1,287 28,211 4.2 26,924 7,839 29.1 19,085 4.2 25.7 30.2 30.2 4.2

May 30, 2013

Coal India | 4QFY2013 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Share Warrants Minority Interest Total Loans Other Long Term liabilities Long term provisions Shifting and rehab. fund Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Net deferred tax assets Total Assets 34,945 22,914 12,031 2,108 1,282 54,313 39,078 8,665 6,570 41,385 12,929 1,086 29,436 36,714 23,871 12,843 2,057 1,064 68,106 45,806 11,180 9,004 26,633 41,472 873 59,231 38,096 24,656 13,440 2,903 1,981 86,341 58,203 13,485 11,739 34,188 52,153 1,194 72,758 41,696 26,469 15,227 5,403 1,981 87,513 58,182 13,485 12,932 34,203 53,309 1,194 78,202 44,696 28,148 16,549 6,903 1,981 90,723 60,740 13,485 13,584 34,244 56,479 1,194 84,193 47,696 29,910 17,786 6,903 1,981 95,892 65,314 13,485 14,179 34,293 61,599 1,194 90,551 1,477 29,436 6,316 19,531 25,848 24 2,087 6,316 26,998 33,314 33 1,366 2,057 22,461 0 59,231 6,316 34,137 40,453 54 1,333 2,647 28,271 0 72,758 6,316 39,581 45,897 54 1,333 2,647 28,271 0 78,202 6,316 45,571 51,888 54 1,333 2,647 28,271 0 84,193 6,316 51,929 58,245 54 1,333 2,647 28,271 0 90,551 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

May 30, 2013

Coal India | 4QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash flow from operations (Inc.)/ Dec. in fixed assets (Inc.)/ Dec. in investments Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid Others Cash flow from financing Inc./(Dec.) in cash Opening cash bal. Closing cash bal. FY2010 FY2011 FY2012 13,965 679 2,268 406.4 3,999 13,320 (1,998) 223 (1,775) (62) (2,210) 109 (2,163) 9,383 29,695 39,078 16,463 1,765 (4,328) 5,623 8,277 (2,568) 3,286 717 (504) (2,583) 70 (3,017) 5,978 39,078 45,057 21,273 1,969 3,565 6,704 20,102 (3,409) (3,409) (247) (7,429) 294.3 (7,382) 9,311 45,057 55,117 FY2013E 24,973 1,813 (1,178) 7,623 17,985 (6,100) (6,100) (11,906) (11,906) (21) 55,117 58,182 FY2014E 25,827 1,679 (611) 7,519 19,375 (4,500) (4,500) (12,317) (12,317) 2,558 58,182 60,740 FY2015E 26,924 1,763 (546) 7,839 20,302 (3,000) (3,000) (12,727) (12,727) 4,574 60,740 65,314

May 30, 2013

Coal India | 4QFY2013 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value Returns (%) RoCE (Pre-tax) RoE (pre-tax) Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage (1.5) (2.8) 105.8 (1.4) (2.7) 166.8 (1.5) (2.8) 281.1 (1.3) (2.6) 380.8 (1.2) (2.6) 473.3 (1.1) (2.8) 443.0 1.3 52 18 9 43 1.4 61 25 7 51 1.6 53 33 7 56 1.6 53 33 7 61 1.6 53 33 7 63 1.6 53 33 7 64 36.3 43.8 27.7 36.7 23.0 40.1 22.8 40.2 22.4 37.4 20.3 34.6 15.6 15.6 17.7 3.5 41.0 17.2 17.2 20.0 3.9 52.8 23.4 23.4 26.5 9.5 64.1 27.5 27.5 30.4 14.5 83.2 29.0 29.0 31.6 15.0 103.2 30.2 30.2 33.0 15.5 120.4 21.1 18.6 8.0 1.1 3.8 12.2 5.7 19.1 16.4 6.2 1.2 3.2 9.7 2.7 14.0 12.4 5.1 2.9 2.4 7.1 2.0 11.9 10.8 3.9 4.4 2.1 6.4 1.7 11.3 10.4 3.2 4.6 1.8 5.6 1.4 10.9 9.9 2.7 4.7 1.7 5.3 1.1 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

May 30, 2013

10

Coal India | 4QFY2013 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies 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 . Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Coal India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 30, 2013

11