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Connecting Markets East & West

Global Markets Research

Coal India
Mining behemoth with pseudo-utility attributes
Anirudh Gangahar NFASL
+91 22 4037 4516
anirudh.gangahar@nomura.com

Archit Singhal NSFSPL


+91 22 4037 4008
archit.singhal.1@nomura.com

May 2016

See Appendix A-1 for analyst certification, important


disclosures and the status of non-US analysts.
Any authors named on this report are research
analysts unless otherwise indicated.

Coal India Accumulate on dips


Constructive for the long haul on volume growth, but needs a price injection to sustain FCF
Worlds 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 hike
in 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 comparable
grade imported coal) + reasonable financial merit and apolitical reasons (wage revisions) for GoI to
support CILs 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 GOIs target);
issuance of bridge linkages, potential improvement in State Discoms financials & build-out of trunk rail
links provide visibility for offtake growth.
The auction of coal linkages (for non-regulated sectors as of now), GOIs directive to increase proportion
of 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 probable
reserves & 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-yr
average); 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 GoIs agenda), [2] Inability to raise
notified coal prices sufficiently + a drop in e-auction realizations. [3] Adverse policy decisions by GoI such
as curtailing e-auctions, [4] Delay in start-up of trunk rail links, [5] Demand for coal remains lackluster
Note: [1] Pricing as of April 20, 2016; [2] Adjusted EBITDA = Reported EBITDA + OBR (Overburden Removal Provisioning); [3] Adjusted Net Profit = Reported
PAT + OBR less Extraordinary Items; [4] Ratings and price targets are as of the date of the most recently published report (http://www.Nomura.com) rather
than the date of this document.

COAL IN Buy
CMP: INR279 | TP: INR310
Key financials and valuation metrics
(INR mn)
Revenue
Reported EBITDA
Adjusted EBITDA
Reported net profit
Adjusted net profit
Adjusted EPS
EPS grow th (%)
BPS
Adjusted P/E (x)
Price/book (x)
EV/EBITDA (x)
ROE (%)
Dividend yield (%)
Net debt/equity
(Rs m n)
EBITDA
Reported
Adjusted
Net Profit
Reported
Adjusted
EPS (Rs)
Reported
Adjusted

FY15
741,201
173,354
211,621
137,267
177,155
22.0
(7.2)
64.0
12.7x
4.4x
8.3x
33.1
7.4
(1.3)
FY15

FY16F
774,977
185,477
209,087
140,415
163,667
22.2
0.8
53.2
12.6x
5.2x
6.7x
37.9
9.8
(1.3)
FY16F

FY17F
825,522
178,381
199,106
130,084
150,809
20.6
(7.1)
52.2
13.5x
5.3x
6.6x
39.1
6.5
(1.3)

FY18F
901,392
189,641
208,178
136,401
154,937
21.6
4.9
52.1
12.9x
5.3x
6.4x
41.4
6.5
(1.3)

FY17F

FY18F

173,354
211,621

185,477
209,087

178,381
199,106

189,641
208,178

137,267
177,156

140,415
163,666

130,084
150,809

136,401
154,937

21.7
28.0

22.2
25.9

20.6
23.9

21.6
24.5

Note: Adjusted Net Profit = Reported Net Profit + OB


Removal Adjustment -extraordinary items
Source: Company data, Nomura estimates

Coal India Stock price movement & valuations


Coal India Key events and share price performance

2014: The stock rallied in May 2014


on prospects of the new infrafocused GoIs removing bottlenecks
in increasing domestic coal supply.
However, orders to curtail e-auction
sales volume to 25-30mt (revoked
later) and disinvestment overhang
(GoI divested 10% stake in Jan2015) led to the correction thereafter.
2015: The stock rallied to reach its
peak in August on the back of a
consistent 7-10% y-y output growth +
growing belief that the volume-led
growth will be sustainable due to
collective impetus by Centre/State
and CIL to address bottlenecks &
improve efficiencies. In August, the
rally fizzled out as GOI announced
its intent to divest a 10% stake (vs.
widely expected 5% divestment
needed to meet listing norms).
2016: YTD, the stock has corrected
sharply on the back [1] weakening
near-term coal demand leading to
negligible y-y volume growth over the
past 3 months, [2] doubling of clean
environment cess to US$6/ton from
March 1 + sustained weakness in
INA coal prices weighing on the need
to take a substantial price hike, [3]
lingering disinvestment overhang.

GOI issues draft


GoM approves
CIL asked to
Diesel price
policy for auction
Diesel prices
'mining tax' at 26%
cut e-auction
hiked by
of coal linkages
hiked by Rs5/ltr
of net profits
sales
Rs10/ltr
Hike in sizing
GOI approves
Board approves new
charges & WCL's
10% divestment
FSAs with minimal
GoI approves
notified col prices
penalty structure
linkage auctions to
CIL hikes coal
non-regulated
prices by ~5%
Rs29/sh
40% gain
sectors
interim
on listing
dividend
2QFY14
declared
dented by
Grade
100% wage
Slippage
revision
demanded
GOI divests 10% GoI starts process
GOI hints at
stake via OFS
divesting 10%
of divesting 10%
stake in CIL
stake
Notified prices
Diversion of enormalized; wage
Board approves
INR27.4 interim
Selective hike in auction coal to
revision finalised
interim dividend
INR20.7 interim
IPPs
DPS declared
notified prices
BJP-led govt.
of Rs9.7/sh
GCV based prices
DPS declared
by 11%
ST & Loading
comes to power
notified
charges hiked

Rs/sh MoP demands


CIL stops selling
coal via e-auction
420

370

320

270

220
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

Source: Bloomberg, Nomura research

CIL 1yr fwd EV/EBITDA (Adjusted)


CIL trades at a 1-year fwd EV/EBITDA of 6.6x
12

1yr Fwd EV EBITDA (Adj.)

Mean

-1SD

+1SD

CIL 1yr fwd P/E (Adjusted)


CIL trades at a 1-year fwd P/E of 11.7x
1yr Fwd PE (Adj.)

Mean

-1SD

+1SD

17

11

15

10
9

13

11

7
6

9
5
4

Nov-15

Mar-16

Mar-15

Jul-15

Nov-14

Jul-14

Nov-13

Source: Bloomberg, Nomura estimates

Mar-14

Jul-13

Nov-12

Mar-13

Mar-12

Jul-12

Nov-11

Mar-11

Jul-11

Nov-10

Mar-16

Nov-15

Mar-15

Jul-15

Nov-14

Jul-14

Mar-14

Nov-13

Mar-13

Jul-13

Nov-12

Mar-12

Jul-12

Nov-11

Jul-11

Mar-11

Nov-10

Source: Bloomberg, Nomura estimates

Coal India Global valuation comparables

At CMP, the stock trades at a 1-yr


forward EV/EBITDA of 6.6x and P/E
of 11.7x on our FY17F/FY18F
adjusted EBITDA/EPS forecast: the
multiples are ~8%/16% below their
respective three-year averages but
above historical trough levels.
However, on our below-consensus
earnings forecast, the stock offers a
reasonable FCFE yield of 8%/7%
for FY17F/FY18F.
Relative to the average valuation
multiples of GOI-owned power
utilities in India, CIL trades at a 10%
premium to normalized FY17F P/E
and a discount of 22% to
normalized FY17F EV/EBITDA;
although normalized RoE remains
significantly higher.
Relative to most of its Indonesian
peers, CIL trades at a premium on
both FY17F P/E and EV/EBITDA,
however, on a resources-based
valuation (at US$1.0 EV/ton of
reserves and US$0.3 EV/ton of
resources), CIL is in line with its
Indonesian peers.

Com pany
Ticker
COAL INDIA
Coal India - Adj.
COAL IN
Coal India - Rep.
COAL IN
India Pow er Utilities
NTPC
NTPC IN
PWGR
PWGR IN
NHPC
NHPC IN
Average
HK
Shenhua Energy-H 1088 HK
Yanzhou-H
1171 HK
Average
S.E.Asia
ITMG
ITMG IJ
Bukit Asam
PTBA IJ
Adaro
ADRO IJ
Average
Australia
Whitehaven Coal WHC AU
New Hope Corp
NHC AU
Average

M. Cap Price
P/E
EV/EBITDA
ROE (%)
Div yield (%)
Rating (US$m ) (Local) FY16F FY17F FY18F FY16F FY17F FY18F FY16F FY17F FY18F FY16F FY17F FY18F
Buy
Buy

26,578
26,578

278.7
278.7

10.8
12.5

11.7
13.5

11.4
12.9

6.3
7.1

6.6
7.4

6.4
7.0

24.5
37.9

23.1
39.1

23.1
41.4

9.8
9.8

6.5
6.5

6.5
6.5

Buy
Buy
NR

17,594
11,692
3,929

141.3
148.0
23.5

13.1
12.5
10.1
11.9

12.1
10.2
9.6
10.6

10.5
8.7
8.5
9.3

11.1
9.2
8.1
9.5

9.9
7.6
7.8
8.5

8.2
6.6
7.0
7.3

10.7
15.3
8.2
11.4

10.9
16.5
8.1
11.8

11.8
17.1
8.9
12.6

2.8
1.7
4.6
3.0

3.4
3.0
4.3
3.6

3.9
3.7
4.8
4.1

NR
NR

43,729
6,021

13.4
4.5

12.6
NM
12.6

12.3
NM
12.3

11.4
NM
11.4

5.1
13.7
9.4

6.2
18.7
12.4

5.9
13.9
9.9

5.5
1.3
3.4

6.1
(1.6)
2.2

6.3
(1.0)
2.6

2.9
0.3
1.6

3.0
0.1
1.6

3.3
0.4
1.9

NR
NR
NR

636
1,332
1,752

7,400
7,600
720

9.4
8.1
11.5
9.6

10.2
10.8
13.7
11.6

13.7
10.2
13.7
12.5

1.2
5.9
4.6
3.9

2.7
8.0
6.1
5.6

3.4
7.2
6.1
5.5

7.3
23.2
5.4
12.0

7.9
16.0
4.1
9.3

6.6
15.9
3.7
8.7

n/a
3.8
n/a
3.8

8.9
4.6
1.8
5.1

7.6
4.4
1.8
4.6

NR
NR

1,011
1,542

0.8
1.5

NM
NM
NM

NM
41.4
41.4

55.0
28.4
41.7

na
na
na

8.4
2.3
5.3

7.5
1.4
4.5

(8.2)
0.2
(4.0)

0.4
1.5
1.0

0.9
3.1
2.0

4.5
2.2

3.4
1.7

3.9
2.0

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 and
R2=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

Coal India Target price build-up

We peg our 12-month TP (INR310)


as the sum-of-the-parts based fair
value of the stock

SOTP = DCF value of cash flows of


proven reserves (INR127/sh) + value
of probable reserves (INR45/sh) &
resources (INR65/sh) + FY15F cash
on hand (INR73/sh)

Earnings are most sensitive to


blended 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 (as


a % of total raw coal sold) results in
~1% change in EPS and TP for CIL.
1% change in realization of e-auction
coal results in 0.4-0.5% change in
EPS and TP
On employee cost, 1% higher wage
hike for employees results in
EPS/TP being lower by 0.7%

Coal India Target price build-up


CF from proven/probable reserves
(INR m )
EBITDA (Adj for provisions/Write-offs)
% grow th
Less: Adjusted taxes
NOPLAT
% grow th
Change in WC
Capex (INR mn)
FCF - Explicit period
Discount factor (WACC)
PV of FCFFs
Cum ulative PV (FY17-35)

FY17F
Mar-17
211,062
-4.8%
(65,623)
145,438
-4.8%
19,105
(60,500)
104,043
1.00
104,043
1,089,152

Net Cash (FY17F)


Value of proven & probable reserves
Value of resources
Target Price

459,039
1,089,152
408,712
1,497,863

FY18F
Mar-18
221,717
5.0%
(68,106)
153,611
5.6%
947
(66,500)
88,058
0.89
78,623
per-share
73
172
65
310

FY19F
Mar-19
250,076
12.8%
(74,716)
175,359
14.2%
(439)
(64,000)
110,920
0.80
88,425

FY20F
Mar-20
279,983
12.0%
(81,417)
198,566
13.2%
(4,199)
(64,000)
130,367
0.71
92,764

FY21F
Mar-21
313,018
11.8%
(90,892)
222,126
11.9%
(2,617)
(60,000)
159,509
0.64
101,339

Key assum ptions


Risk free rate
Market risk premium
Beta
WACC

FY22F
Mar-22
338,655
8.2%
(98,018)
240,637
8.3%
49,766
(60,000)
230,402
0.57
130,696

FY26F
Mar-26
356,636
-2.4%
(99,294)
257,342
-1.8%
(2,090)
(60,000)
195,252
0.36
70,366

FY35F
Mar-35
140,312
-13.4%
(20,225)
120,087
-10.2%
16,386
(60,000)
76,472
0.13
9,935

7.5%
5.0%
0.90
12.0%

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 of
12.0% for CIL | Source: Company data, Nomura estimates

CIL Earnings and TP sensitivity to Offtake/ASP


Sensitivity to key m etrics
Offtake
Base case
5-6mt higher
5-6mt low er
Sensitivity to 1% variation
Sensitivity to 1mt variation
Blended ASP
Base case
+1% change
-1% change
Sensitivity to 1% variation (%)
Source: Nomura estimates

Adj. EPS (INR/sh) Fair Value


FY17F
FY18F
(INR/sh)
23.9
24.7
23.5
2.6%
0.5%

24.5
25.5
24.1
2.9%
0.6%

310
324
303
3.4%
0.7%

23.9
24.6
23.2
2.9%

24.5
25.3
23.8
3.1%

310
322
298
3.9%

CIL Earnings and TP sensitivity to e-auctions


Adj. EPS (INR/sh) Fair Value
Sensitivity to key m etrics
FY17F
FY18F (INR/sh)
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%
Source: Nomura estimates

Coal India Key assumptions / metrics

FY16 production/offtake was


536.5mt/532.3mt (+8.6%/+8.8% y-y).
Based on demand/supply dynamics
for domestic coal in the near term,
we build in lower 4.5% y-y growth in
production 6% y-y growth in offtake
for FY17F.
We expect production to grow from
537mt in FY16 to 710mt in FY20F
and offtake to grow from 532mt in
FY16 to 711mt in FY20F, implying a
CAGR of 7.4%/7.6% over this period.
We expect a 1% CAGR in blended
realization over this period, driven
largely by our assumed price hike in
1HFY17.

Unit
KEY PHYSICAL METRICS
Production
mt
Offtake
mt
Inventory
mt
KEY OPERATING METRICS
Blended Realization
INR/ton
Cash cost
INR/ton
Cost of production
Reported
INR/ton
Adjusted
INR/ton
EBITDA
Reported
INR/ton
Adjusted
INR/ton
Net Profit
Reported
INR/ton
Adjusted
INR/ton
KEY OPERATING METRICS (USD)
Realization
USD/ton
Cash cost
USD/ton
Cost of production
Reported
USD/ton
Adjusted
USD/ton
EBITDA
Reported
USD/ton
Adjusted
USD/ton
Net Profit
Reported
USD/ton
Adjusted
USD/ton

Key m etrics
FY16F
FY17F

FY18F

YoY grow th
FY15
FY16F
FY17F

494.2
489.4
54.2

536.5
532.3
58.4

560.7
564.1
55.0

602.7
609.2
48.4

6.9%
3.8%
9.9%

8.6%
8.8%
7.8%

4.5%
6.0%
-6.0%

7.5%
8.0%
-11.9%

6.8%
7.6%
-3.7%

1,470
1,051

1,413
1,031

1,421
1,096

1,437
1,128

0.7%
0.4%

-3.9%
-1.9%

0.6%
6.3%

1.1%
2.9%

-0.7%
2.4%

1,149
1,072

1,099
1,055

1,154
1,117

1,181
1,150

0.5%
0.0%

-4.4%
-1.6%

5.1%
5.9%

2.3%
2.9%

0.9%
2.4%

354
432

349
393

316
353

312
342

4.4%
-3.0%

-1.4%
-9.0%

-9.3%
-10.2%

-1.6%
-3.2%

-4.2%
-7.5%

280
358

264
308

231
268

224
255

-12.5%
-8.6%

-5.9%
-14.0%

-12.6%
-13.1%

-2.9%
-4.8%

-7.2%
-10.7%

23.5
16.8

21.3
15.6

21.4
16.5

21.6
17.0

-3.5%
-3.8%

-9.3%
-7.5%

0.2%
5.9%

1.1%
2.9%

-2.8%
0.3%

18.4
17.1

16.6
15.9

17.4
16.8

17.8
17.3

-3.7%
-4.2%

-9.8%
-7.1%

4.7%
5.5%

2.3%
2.9%

-1.1%
0.3%

5.7
6.9

5.3
5.9

4.8
5.3

4.7
5.1

0.1%
-7.0%

-7.0%
-14.1%

-9.6%
-10.5%

-1.6%
-3.2%

-6.1%
-9.4%

4.5
5.7

4.0
4.6

3.5
4.0

3.4
3.8

-16.1%
-12.4%

-11.3%
-18.9%

-12.9%
-13.4%

-2.9%
-4.8%

-9.1%
-12.6%

FY15

CAGR
FY18F FY15-18F

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

Coal India Production roadmap up to FY20

Pre-requisites Enhanced and timely


availability of rail links and evacuation
capacity (rakes), facilitation of land
acquisition/possession (incl. R&R),
streamlining process to secure FC.

mt
BCCL
CCL
ECL
MCL
NCL
SECL
WCL
Total

FY16*
36
61
40
138
80
136
45
536

FY16E
36
61
42
150
78
137
45
549

FY17E
37
67
47
167
82
150
48
597

FY18E
41
80
52
187
90
161
50
661

FY19E
46
102
57
222
99
193
55
774

FY20E
53
134
62
250
110
240
60
908

mt

11%

Deviation as a % of Target (RHS)

10%

30

9%
25

8%

20

7%

15

6%
5%

10

4%

Note: [1] Figures for North Eastern Coalfields (NEC) are not included, [2]
*Adjusted for Actuals, [3] As per Ministry of Coal year-end review (Dec2015), WCL has revised its target from 60mt to 100mt by 2020 (year-wise
targets not available)

3%

2%
Feb'16

Dec'15

Oct'15

Aug'15

Jun'15

Apr'15

Feb'15

Dec'14

Oct'14

Aug'14

Source: Company data, Nomura estimates, Sigma Insights

Source: Company data, Nomura research

CIL production targets vs. Nomura estimates


CIL targets imply FY16-20F CAGR of 14.1%
1,000

Deviation from Target (LHS)

35

Jun'14

Mgmt. commentary on the roadmap


[1] Identified subsidiary-wise projects
where evacuation is a problem and has
set continuously monitored timelines for
resolving the issues, [2] Senior exRailway officials taken on board to create
synergies with the Railways in debottlenecking and boosting evacuation
infrastructure, [3] In order to achieve
10% annual production growth, CIL
would need annual incremental land
possession of ~2000 hectares.

CIL Deviation of offtake vs. CILs own target


FY16 offtake is 3.2% below CILs target

CIL Subsidiary wise production targets


Subsidiaries target a double-digit CAGR for FY16-20

Apr'14

CILs five year roadmap Envisaged


production in FY20 = 908mt; balance
92mt to come from new projects to be
identified over the next 2-3 years. Output
growth is back-ended (17% y-y growth
pegged in FY19F/FY20F). MCL and
SECL to contribute ~60% of production
increase between FY15-20.

20%

CIL Target
Nomura Estimate
CIL Target (YoY)
Nomura Estimate (YoY)

mt
900

18%
16%

800

14%
12%

700

What do we build into our forecast


We assume coal production to grow from
536.5mt in FY16 to 710mt in FY20F
(7.4% CAGR) vs. the 14.1% CAGR
implied as per the five-year roadmap

10%
600

8%
6%

500
4%
400

2%
FY16*

FY17F

FY18F

FY19F

FY20F

* Adjusted for Actuals | Source: Nomura estimates, Sigma Insights

Coal India Subsidiary wise production/offtake

Relative to CILs MoU-based FY16


production / offtake targets of 550mt
each, actual production / offtake
stood at 536.5mt / 532.3mt, implying
a shortfall of 2.5% / 3.2%. The
absolute shortfall was 13.5mt /
17.7mt.
Majority of the shortfall was seen at
MCL wherein production/offtake was
12mt/10mt (8.1%/6.5%) lower vs.
target. ECL/WCL also contributed to
the shortfall in offtake (8.5%/6.2%
lower vs. their respective targets)

Rake availability and loading picked


up significantly in FY16.

Our FY17F, production/offtake is


561mt/564mt (+4.5%/+6.0% y-y), vs
a target of 598mt set by the GoI.

Its been a disappointing start to


FY17 as coal production/offtake in
April declined 3.4%/2.5% y-y the
first y-y drop in monthly volume since
January 2015

CIL Monthly trend in production/offtake in FY16


FY15
Mar
Apr
Coal production (mt)
ECL
5.0
3.3
BCCL
3.7
3.0
CCL
7.5
4.8
NCL
9.7
5.9
WCL
4.7
3.4
SECL 14.1
10.4
MCL
12.4
10.7
NEC
0.2
0.0
Total
57.3
41.5
Coal offtake (mt)
ECL
4.1
3.7
BCCL
3.2
3.2
CCL
5.8
5.0
NCL
7.7
6.2
WCL
3.8
3.7
SECL 11.3
11.1
MCL
11.5
10.7
NEC
0.1
0.0
Total
47.5
43.6

May

Jun

Jul

Aug

FY16
Sep
Oct

Nov

Dec

Jan

Feb

Mar

Actual

FY16
YoY Target

3.1
3.0
3.9
6.3
4.0
10.4
10.3
0.0
41.0

2.7
2.9
4.0
6.1
2.9
10.3
10.0
0.0
38.8

2.0
2.6
3.6
5.5
3.0
9.1
9.0
0.0
34.8

1.8
2.7
4.3
5.7
2.5
9.1
10.1
0.0
36.2

2.1
2.7
4.3
5.7
2.6
10.0
9.8
0.0
37.2

2.9
2.8
4.9
6.9
3.6
12.0
11.4
0.0
44.4

3.9
2.9
5.9
6.8
3.9
12.1
12.1
0.0
47.5

4.3
3.1
5.9
7.6
4.5
12.9
13.9
0.0
52.1

4.6
3.2
5.7
8.0
4.5
13.1
13.7
0.1
52.9

4.5
3.3
6.2
7.3
4.8
12.1
12.8
0.1
51.0

5.1
3.9
8.0
8.4
5.3
14.3
14.1
0.2
59.2

40.2
35.9
61.4
80.2
44.8
135.7
137.9
0.5
536.5

0.5%
3.9%
10.3%
10.7%
8.9%
5.7%
13.6%
-37.8%
8.6%

42.1
35.9
60.6
78.1
45.1
137.0
150.0
1.2
550.0

-4.6%
0.0%
1.2%
2.7%
-0.6%
-1.0%
-8.1%
-59.8%
-2.5%

3.7
3.1
5.0
6.3
3.6
10.9
11.1
0.0
43.7

3.2
2.9
4.8
6.2
3.5
11.0
10.7
0.0
42.2

2.6
2.8
4.7
5.7
3.8
10.7
10.6
0.0
40.9

2.1
2.9
4.9
5.8
3.1
10.1
11.6
0.0
40.6

2.3
2.9
4.7
6.1
2.9
11.0
10.6
0.0
40.4

2.8
2.9
4.8
6.8
3.5
11.9
11.7
0.0
44.4

3.2
2.9
5.2
6.7
3.6
11.9
11.9
0.0
45.3

3.6
3.0
5.2
7.3
3.9
12.4
12.8
0.0
48.2

3.9
3.1
4.9
7.4
3.7
12.1
13.2
0.1
48.3

3.7
3.1
5.0
6.6
3.4
11.3
12.5
0.0
45.5

4.1
3.3
5.4
7.3
3.7
12.3
13.0
0.0
49.1

38.6
36.1
59.6
78.5
42.3
136.6
140.2
0.3
532.3

0.3%
7.4%
7.7%
6.5%
2.6%
10.9%
14.0%
-53.4%
8.8%

42.1
35.9
60.6
78.1
45.1
137.0
150.0
1.2
550.0

-8.5%
0.8%
-1.7%
0.5%
-6.2%
-0.3%
-6.5%
-72.1%
-3.2%

Var

Note: Minor discrepancy between the total FY production / offtake vs. sum of individual months is potentially due to a restatement of provisional historical
numbers by CIL | Source: Company data, Nomura research

CIL Rakes availability (since 2012)


2012
2013
y/y growth
2014
y/y growth
2015
y/y growth

Jan
185.0
210.0
13.5%
210.0
0.0%
204.5
-2.6%

Feb
193.0
209.0
8.3%
208.3
-0.3%
211.9
1.7%

Mar
195.0
220.0
12.8%
205.9
-6.4%
217.3
5.5%

Apr
182.0
201.0
10.4%
197.7
-1.6%
215.0
8.8%

May
180.0
184.0
2.2%
186.6
1.4%
207.0
10.9%

Jun
176.0
187.0
6.3%
178.9
-4.3%
198.2
10.8%

Jul
175.0
189.0
8.0%
175.5
-7.1%
197.0
12.3%

Aug
155.8
176.8
13.5%
179.6
1.6%
194.0
8.0%

Sep
154.0
182.0
18.2%
180.1
-1.0%
198.0
9.9%

Oct
183.0
169.0
-7.7%
192.0
13.6%
211.0
9.9%

Nov
186.0
190.0
2.2%
207.4
9.2%
224.0
8.0%

Dec
199.0
200.0
0.5%
207.0
3.5%
224.0
8.2%

Source: Company data, Nomura research

Coal India Linkage auction

In June-2015, MoC issued an


Approach Paper on auction of coal
linkages for non-regulated sectors,
linkage auctions were approved by
GoI in Feb-2016. The approach
paper indicated tenure of linkages to
be 5 years.
Key points [1] CIL has flexibility to
peg reserve price based on
demand/supply. [2] No premature
termination of existing FSA, but FSA
maturing in FY16 would not be
renewed. [3] Quantity = FSAs
terminating in FY16 + 25% of
incremental production of CIL/SCCL.
24mt to be auctioned in FY17;
assuming CILs share is ~20mt (i.e.
3-4% of its total offtake). Even if
there is a 10% variation (uptick) in
realization for this 20mt, our FY17F
CILs earnings would rise by 1-2%.
CIL sells ~60mt coal to nonregulated sectors. We estimate avg.
price of coal sold under FSAs to this
category 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 washed
coal

CIL Price realization by coal category

CIL- Revenue realization by coal category

(INR/ton)
E-auction coal
Beneficiated coal
FSA coal
Blended ASP

FY15
2,450
2,348
1,327
1,470

FY16F
1,903
2,302
1,320
1,413

FY17F
1,744
2,298
1,356
1,421

FY18F
1,717
2,876
1,353
1,437

yoy (%)
E-auction coal
Beneficiated coal
FSA coal
Blended ASP

12.3
(0.1)
1.1
0.7

(22.3)
(2.0)
(0.5)
(3.9)

(8.3)
(0.1)
2.7
0.6

(1.5)
25.1
(0.2)
1.1

Source: Company data, Nomura estimates

(Rs m n)
E-auction coal
Beneficiated coal
By products
FSA coal
Total revenues

FY15
FY16F
FY17F
FY18F
114,920 116,167 109,323 110,244
28,100
31,647
31,481
55,261
11,670
13,134
11,964
12,605
565,456 590,564 648,193 696,758
720,146 751,512 800,961 874,868

% breakdow n of revenues
E-auction coal
16.0
Beneficiated coal
3.9
FSA coal
78.5
By products
1.6
Total
100.0

15.5
4.2
78.6
1.7
100.0

13.6
3.9
80.9
1.5
100.0

12.6
6.3
79.6
1.4
100.0

Source: Company data, Nomura estimates

CIL sector-wise coal dispatches


Linkage coal to non-regulated sectors at 60mt in FY15

CIL- Revenue realization by coal category


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

(m t)
E-auction
Linkage - Pow er
Linkage - Non-Pow er
Steel
Cement
Fertilizer
Others
Total

FY11
47.7
304.2
72.5
9.3
10.0
2.7
50.6
424.5

FY12
50.9
312.1
70.0
4.1
6.7
2.8
56.4
433.0

FY13
49.1
345.4
71.6
4.7
6.5
2.5
57.9
466.2

FY14
58.0
353.8
59.6
3.7
5.5
2.3
48.2
471.5

FY15
46.9
384.2
58.3
3.8
5.6
2.3
46.7
489.4

60

50

55%
50%
45%
40%

40

35%
30

Source: Company data, Nomura research

30%
20

25%

10

20%
FY13

FY14

FY15

FY16F

FY17F

FY18F

Note: Calculations based on CIF prices of ex-Indonesia comparable GCV


coal at port vs. ex-mine cost of CIL coal (after adding royalties/excise
duties/levies to net realization of CIL | Source: Company data, Nomura
estimates

Coal India Notified pricing and grading structure

Linkage coal price revision While


CIL hiked coal prices thrice in FY14,
there was no hike in FY15 & FY16.
During FY14, CILs revision of
notified prices (May 28, 2013)
effectively raised price for 34004600GCV coal by 10%. CILs Dec2013 revision of non-coking coal
prices for WCL and sizing charges
together implies an effective price
hike of ~1.5%. Pricing premium for
non-core sectors at ~35%.
For FY14/FY15, e-auction realization
was at a 69%/87% premium to CILs
average realization for notified coal
prices (excluding YE incentives).
This realization premium has shrunk
to 51% during 9MFY16.
For IPPs, at INR/USD=66.5, the CIF
price of 4,200GCV coal (ex-INA) is
~INR2,900/ton, whereas ex-mine
cost of coal from Coal India is
~INR1900/ton, implying ~35%
discount.

CIL Summary of revision in coal grading and pricing mechanism


Pre-May 28, 2013
Grade

GCV

>7000

II
III

May 28, 2013 onw ards

Change in Price

Priority

Other

Priority

Other

Priority

Other

6,700-7,000

4,870

4,870

4,870

4,870

0.0%

0.0%

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%

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%

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%

Notes: (1) Priority Sectors = power utilities (incl. IPPs), fertilizers and defence; (2) For WCL, there shall be a 10% add on over
and above the price mentioned above for GCV bands not exceeding 5800 Kcal/Kg; (*) For GCV exceeding 7000 Kcal/Kg, the
price shall increase by INR150/ton over and above the price applicable for GCV band exceeding 6700Kcal/kg but less than
7000 Kcal/kg, for every 100 Kcal/Kg increase in GCV. (3) An additional Rs300/ton shall be charged over and above the notified
price in respect of coal produced from Rajmahal mine of Eastern Coalfields Ltd
Source: Company data, Nomura research

Supply to be considered for ACQ,


incentive/compensation to be
adjusted for sub-3100GCV coal.

Coal India Headroom to raise low GCV coal prices

CIL's ex-mine coal price is at an


average discount of 33%/45% for
non-power / power sectors vs.
comparable price of INA coal.
We expect that the coal price
rationalization exercise would entail
a 20-25% cut in the notified price of
high grade (G1-G5 grades) coal and
a 10% hike in the notified price of
lower grades of coal (G8-G17).
In absolute terms, this would imply
an INR50-125/ton rise in notified
prices for sub-5200GCV coal for the
power sector. In turn, this would
translate into a potential INR0.040.08/kWh rise in the variable cost of
generation (2-4% rise in the total
cost of generation depending upon
the inland transportation cost + the
fixed cost of the project).

CIL Discount of CIL's grade-wise coal price to comparable imported coal price (from Indonesia)
Grade

I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI

GCV
Offtake
Range non-coking
(FY15)
Kcal/kg
(m t)
>7000
0.2
6,700-7,000
0.6
6,400-6,700
4.7
6,100-6,400
18.1
5,800-6,100
15.7
5,500-5,800
12.5
5,200-5,500
17.2
4,900-5,200
32.4
4,600-4,900
54.9
4,300-4,600
39.9
4,000-4,300
109.0
3,700-4,000
76.7
3,400-3,700
57.2
3,100-3,400
2,800-3,100
2,500-2,800
-

Noncoking
coal
m ix
%
0.1%
0.1%
1.1%
4.1%
3.6%
2.8%
3.9%
7.4%
12.5%
9.1%
24.8%
17.5%
13.0%
0.0%
0.0%
0.0%

CIL RoM price


(INR/m t)
Pow er
4,870
3,890
3,490
2,800
1,600
1,400
1,250
970
860
700
660
610
550
510
450

CIL - Gross
FoB Price INA coal Discount of CIL to
Realization ($/m t)
(INA coal price
INA coal price
-- [A]
HBA / Platts) (CIF)- [B]
(1-A/B)
Others Pow er Others
$/m t
$/m t
Pow er Others
4,870
3,890
3,490
2,800
2,150
1,890
1,690
1,310
1,160
950
890
820
740
680
610

81.2
73.6
60.4
37.5
33.6
30.8
25.4
23.3
20.3
19.5
18.5
17.4
16.6
15.5

81.2
73.6
60.4
48.0
43.0
39.2
31.9
29.1
25.0
23.9
22.6
21.0
19.9
18.5

52.6
52.3
44.5
43.1
43.3
37.4
34.2
33.5
26.3
20.6
17.3
14.4
13.7

70.4
70.0
62.1
60.6
60.8
54.8
51.5
50.7
43.4
37.5
34.2
31.2
30.5

-15.4%
-5.1%
2.7%
38.2%
44.6%
43.8%
50.6%
54.0%
53.3%
48.1%
45.8%
44.2%
45.4%

-15.4%
-5.1%
2.7%
20.8%
29.2%
28.5%
38.0%
42.7%
42.3%
36.3%
34.0%
32.6%
34.7%

Average Discount --->

44.6%

33.5%

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 taxes
of ~5%. | Source: Nomura estimates

10

Coal India Offtake and revenue mix

As per NCDP, e-auction sales


volume can be in the vicinity of 10%
of the offtake. As per a subsequent
guidance, it was suggested that the
quantum may gradually be tapered
to 7% of the offtake in case there is
need to meet minimum supply
committed under FSAs.
MoC had effectively clarified that
there are no additional cap / riders
on the sale of coal via e-auction.
Special e-auctions for both power
and non-power consumers were
being undertaken in FY16 at the
behest of the Coal Ministry.

CIL Offtake by coal category

CIL Premium of e-auction over FSA realization

FY15
489.4
46.9

FY16F
532.3
61.1

FY17F
564.1
62.7

FY18F
609.2
64.2

9.6
2.4
87.2
0.7

11.6
2.6
84.8
0.9

11.2
2.4
85.5
0.8

10.7
2.3
86.2
0.7

Total Revenues (INRmn)


720,146
E-auction Revenues (INRmn) 114,920
E-auction Realization (INRmn)
2,450
Revenue split (%)
E-auction coal
16.0
Beneficiated coal
3.9
FSA coal
78.5
Others
1.6

751,512
116,167
1,903

800,961
109,323
1,744

874,868
110,244
1,717

15.5
4.2
78.6
1.7

13.6
3.9
80.9
1.5

12.6
6.3
79.6
1.4

Total offtake (mt)


E-auction offtake (mt)
Offtake split (%)
E-auction coal
Beneficiated coal
FSA coal
Others

120%
100%

80%
60%
40%

20%
0%
FY12

FY13

FY14

FY15 FY16F FY17F FY18F

Source: Company data, Nomura estimates

Source: Company data, Nomura estimates

Coal inventory stood at 58.4mt as of


FY16 (vs. 54.2mt as of FY15).

Premium of e-auction over FSA is


expected to drop to ~30% in FY17F /
18F vs. 87% in FY15.

CIL Subsidiary-wise coal inventory (mn tons)

(m n tons)
Rail
MGR
Road
Others
Total

20
18
16

FY13

FY14

FY15

FY16

14

We build in an e-auction sales


volume of 61-64mtpa during FY16F18F, implying 11-12% of offtake.

CIL Coal despatch by mode of transport

12
10

% of total despatch
Rail
MGR
Road
Others

8
6
4
2

FY12
229.1
79.3
113.4
11.2
433.0

FY13
251.1
88.8
115.7
10.7
466.2

FY14
259.4
88.8
112.8
10.5
471.5

FY15
266.5
90.1
122.1
11.3
490.0

52.9
18.3
26.2
2.6

53.9
19.0
24.8
2.3

55.0
18.8
23.9
2.2

54.4
18.4
24.9
2.3

Source: Company data, Nomura research

0
MCL

CCL

SECL

BCCL

ECL

NCL

WCL

Source: Company data, Nomura estimates

11

Coal India Assessing the operating costs


CIL Volume growth + price hike to help keep pre-OB EBITDA/ton stable
FY12

(INR m n)
Operating Expenses

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

363,705

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

Social Overheads

FY13

FY14

FY15

FY16F

CIL Employee count to reduce by 3-4% annually

FY17F

FY18F

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%

5.2%

10.1%

15.8%

3.3%

-2.3%

1.4%

4.3%

14.7%

15.9%

-2.2%

2.9%

5.3%

2.4%

6.4%

7.0%

18.4%

17.7%

24.7%

32.3%

14.7%

16.5%

-24.7%

1.6%

14.4%

3.7%

14.1%

0.0%

11.5%

Consumption of Stores & Spares


Pow er & Fuel
Contractual Expenses
Others (Ex OB Removal Adj.)
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
Consumption of Stores & Spares
Pow er & Fuel
Contractual Expenses
Others (Ex OB Removal Adj.)
Y-Y grow th (%) in Opex/ton
Employee cost
Social Overheads
Consumption of Stores & Spares
Pow er & Fuel
Contractual Expenses
Others (Ex OB Removal Adj.)

14

17

10

126

134

152

147

132

128

124

46

52

49

47

46

45

45

112

128

148

172

210

230

250

99

97

108

105

111

106

110

16.7%

5.3%

3.1%

0.0%

-1.6%

5.9%

2.9%

43%

0%

0%

0%

-9%

8%

2%

-86%

89%

-36%

-32%

186%

-41%

-12%

4%

6%

13%

-3%

-10%

-3%

-3%

14%

12%

-4%

-4%

-3%

-2%

-1%

6%

14%

15%

17%

22%

10%

8%

-25%

-2%

12%

-3%

5%

-4%

4%

Note: OBR = Overburden Removal Adjustment | Others = Repairs + Miscellaneous expenses + Provisions/write-backs
Source: Company data, Nomura estimates

390

1.2

Employees in '000 (LHS)


Employees per '000 ton of production

370

1.0

350
0.8

330
0.6
310
0.4
290

0.2

270
250

FY12

FY13

FY14

FY15

FY16F FY17F FY18F

Source: Company data, Nomura estimates

CIL Employee cost to account for ~40% of sales


400

70

Employee cost (INR bn)


% of Total Cost (RHS)
% of Revenues (RHS)

INR bn
350

65
60

300

55
250
50
200
45
150

40

100

35

50

30
FY12

FY13

FY14

FY15

Source: Company data, Nomura estimates

FY16F

FY17F

FY18F

12

CIL Key financial metrics


CIL RoE and cash (% of total assets)

CIL Adjusted non-operating income at ~25% of PBT


80

40%

35%

Normalized RoE (LHS)

58%

Cash as % of Total Assets


(RHS)

54%

INR bn

Non-operating income (INR bn)


As % of PBT

30%

32%

70
30%

50%
46%

25%

34%

28%

60

26%

42%
20%
38%
15%

24%

50

34%

10%

22%

30%
FY12

FY13

FY14

FY15

FY16F

FY17F

40

FY18F

Note: RoE is calculated for after adjusting for OB removal . Source:


Company data, Nomura estimates

INR bn

FY13

FY14

FY15

FY16F

FY17F

FY18F

Source: Company data, Nomura estimates

CIL Strong operating cashflows


250

20%
FY12

CIL FCF generation and yield

Operating CF (LHS)
Capex (LHS)
Capex per ton of production (RHS)

INR/ton

250
120
110

200

14%

INR bn

Free Cash Flow


FCF Yield (RHS)

200

12%

100

10%
90

150

150
8%

80
100

70

100
6%

60
50

50

4%

50

40
FY12

FY13

FY14

FY15

FY16F

FY17F

FY18F

2%

FY12
Source: Company data, Nomura estimates

FY13

FY14

FY15

FY16F

FY17F

FY18F

Source: Company data, Nomura estimates

13

Coal India Quarterly trend in financials


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 blended
realization (INR1454/ton).
Margins: Pre-OBR margin posted a
60bps y-y drop to 25.2% on the back
of higher contractual expenses.
EBITDA/ton: Pre-OB EBITDA
dropped by 4.6% to INR366/ton.

Qtrly - Snapshot

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

QoQ

YoY

9MFY15

9MFY16

YoY

(INR m n)
Production (mn tons)

Jun-14
108.3

Sep-14
102.4

Dec-14
131.6

Mar-15
151.9

Jun-15
121.4

Sep-15
108.2

Dec-15
(%)
144.0 33.0%

(%)
9.4%

Dec-14
342.4

Dec-15
373.5

(%)
9.1%

Offtake (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)

8.1%

321

328

2.3%

7.0%

527,805

566,074

400

231

323

437

382

247

350

41.7%

Key Financials (INR m )


Revenues
183,056

161,645

183,105

213,396

195,181

174,899

195,994

12.1%

Employee cost

(70,466)

(72,866)

(74,914)

(80,341)

(71,852)

(75,304)

(73,541)

-2.3%

Materials consumed

(15,707)

(16,928)

(18,420)

(21,510)

(15,867)

(16,443)

(17,805)

8.3%

-3.3%

(51,055)

(50,115)

(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%

19.1%

54,671

31,096

50,454

74,661

56,534

30,494

55,617

29.9%

19.2%

27.6%

35.0%

29.0%

17.4%

28.4%

OBR

(6,801)

(5,536)

(10,179)

(15,752)

(7,091)

(410)

(7,419)

EBITDA (reported)

47,870

25,560

40,276

58,909

49,442

30,084

48,198

Depreciation

(5,183)

(5,363)

(5,672)

(5,999)

(5,575)

(5,864)

(6,279)

EBIT

42,687

20,197

34,604

52,910

43,867

24,220

41,920

Pow er & Fuel

EBITDA (pre-OB)
Margin

Interest expenses

(11)

(11)

(22)

(29)

(40)

(15)

(30)

-1.8% (218,247) (220,697)

82.4% 10.2%
NM -27.1%

(47,826)

(56,955)

136,221

142,644

25.8%

25.2%

7.3%
1.1%
-1.8%

4.7%

(22,515)

(14,920) -33.7%

60.2% 19.7%

113,706

127,725

7.1% 10.7%

(16,218)

(17,718)

9.2%

73.1% 21.1%

97,488

110,007

12.8%

95.4% 33.8%

(44)

(85)

12.3%

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

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%

(19,246)

(13,668)

(18,131)

(27,624)

(20,429)

(13,328)

(18,584)

39.4%

2.5%

(51,044)

(52,341)

2.5%

Taxes
Minority Interest
Norm alized PAT
Extraordinary
Reported PAT

40,175

21,876

158

48

40,333

21,924

32,795
(170)
32,625

42,518

37,869

25,191

36,845

248

337

25,438

37,183

(133)
42,386

(226)
37,644

46.3% 12.4%
46.2% 14.0%

-12.6%

94,846

99,905

36

359

NM

94,882

100,264

5.7%

5.3%

Source: Company data, Nomura research

14

Coal India Quarterly pricing/volume metrics

Realizations: 9MFY16 FSA


realization is flat y-y, whereas eauction prices down 21% y-y in
9MFY16.
Year-end incentives: CIL secured
INR13bn / INR8bn / INR7bn supplylinked incentives in FY13 / FY14 /
FY15. Going forward, rising domestic
coal commitments under FSAs is a
risk to this benefit. We peg FY16F /
FY17F year-end incentives at
INR5.6bn / INR4.2bn.
Sales mix: Absolute quantum of coal
sold via e-auction was down 19% y-y
in FY15. E-auction as a % of sales
stood at 11.8% in 9MFY16 vs. 9.3%
in 9MFY15.

Key Revenue
Metrics

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 volum e (m t)
E-auction

16.8

10.6

5.6

13.9

16.0

14.7

15.2

33.0

45.9

39.1%

3.0

2.8

3.0

3.2

3.4

3.1

3.7

16.6%

22.0%

8.7

10.2

17.0%

99.2

96.1

114.7

116.0

109.0

103.0

116.4

13.0%

1.5%

310.0

328.4

5.9%

14.0%

9.6%

4.5%

10.4%

12.4%

12.1%

11.1%

9.3%

2.5%

2.5%

2.4%

2.4%

2.6%

2.6%

2.7%

2.5%

2.6%

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%

Beneficiated 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)
Blended (on offtake)

1,320

1,260

1,298

1,358

1,318

1,294

1,277

-1.3%

-1.6%

1,293

1,296

0.2%

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 m n)
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%

Beneficiated 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%

130,885

121,100

148,921

157,539

143,630

133,340

148,700

11.5%

-0.1% 400,907

425,670

6.2%

Beneficiated coal
Notified (FSA)
Sales Mix (%)
E-auction
Beneficiated coal
Notified (FSA)

Notified (FSA)
Revenue Mix (%)
E-auction

11.8%

21.2%

16.9%

9.9%

16.5%

18.4%

15.5%

14.9%

16.0%

4.0%

4.3%

4.4%

3.2%

4.0%

4.3%

4.6%

4.2%

4.3%

73.5%

77.2%

83.8%

78.5%

75.8%

78.6%

78.4%

78.2%

77.6%

Beneficiated coal
Notified (FSA)

2.8% 171.2%

16.3%

BENEFICIATED COAL SPLIT


Sales volum e (m n tons)
Coking
Non Coking
Sales Mix
Coking
Non Coking
Realization (INR/ton)
Coking
Non Coking
Revenues (INR m n)
Coking
Non 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%

2.4

2.3

2.4

2.7

3.0

2.6

3.1

-12.0%

14.8%

7.1

8.7

22.4%

17.6%

17.6%

19.7%

16.4%

12.3%

16.2%

15.0%

18.3%

14.5%

82.4%

82.4%

80.3%

83.6%

87.7%

83.8%

85.0%

81.7%

85.5%

5,981

6,245

5,559

3,019

4,619

4,745

5,127

5,906

4,851

-17.9%

1,626

1,633

1,898

1,766

1,893

1,859

1,881

1,720

1,879

9.2%

3,110

3,060

3,280

1,600

1,940

2,420

2,820

9,450

7,180

-24.0%

3,950

3,740

4,574

4,786

5,660

4,890

5,850

12,264

16,400

33.7%

Source: Company data, Nomura research

2.7% -24.0%
-1.8%

13.8%

24.7% -20.9%
-13.6%

30.7%

15

Coal India Financial summary


Cashflow statement (INR mn)

Income Statement (INR mn)


Year-end 31 Mar
Revenue
Cos t of goods s old
Gros s profit
SG&A
Em ployee s hare expens e
Operating profit
EBITDA
Depreciation
EBIT
Net interes t expens e
Other income
Earnings before tax
Incom e tax
Net profit after tax
Minority interes ts
Normalised NPAT
Extraordinary item s
Reported NPAT
Dividends
Trans fer to res erves

Valuations and ratios


Reported P/E (x)
Norm alis ed P/E (x)
FD norm alis ed P/E (x)
Dividend yield (%)
Price/cas hflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gros s m argin (%)
EBITDA m argin (%)
EBIT m argin (%)
Net m argin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)

Growth (%)
Revenue
EBITDA
Norm alis ed EPS
Norm alis ed FDEPS

FY14
706,075
-162,245
543,831
-107,044
-279,144
157,643
177,607
-19,964
157,643
-580
71,719
228,781
-79,074
149,708
0
149,708
1,409
151,117
-211,427

FY15
741,201
-175,859
565,342
-116,445
-298,741
150,156
173,354
-23,198
150,156
-73
65,706
215,789
-76,902
138,888
1
138,889
-1,622
137,267
-154,994

FY16F
774,977
-202,298
572,679
-116,573
-295,044
161,062
185,477
-24,415
161,062
-111
54,369
215,320
-75,263
140,057
0
140,056
359
140,415
-208,198

FY17F
825,522
-229,306
596,216
-112,275
-332,084
151,857
178,381
-26,524
151,857
-77
50,091
201,871
-71,787
130,084
0
130,084
0
130,084
-136,773

FY18F
901,392
-257,966
643,426
-119,445
-363,705
160,276
189,641
-29,366
160,276
-72
50,967
211,170
-74,769
136,401
0
136,401
0
136,401
-136,773

-60,311

-17,727

-67,783

-6,688

-372

FY14
11.6
11.8
11.8
10.4
10.0
4.2
7.0
7.9
77.0
25.2
22.3
21.4
34.6
139.9
33.3
33.0

FY15
12.8
12.7
12.7
7.4
9.0
4.4
7.1
8.2
76.3
23.4
20.3
18.5
35.6
112.9
33.2
28.5

FY16F
12.5
12.6
12.6
9.8
10.8
5.2
7.1
8.2
73.9
23.9
20.8
18.1
35.0
148.3
38.0
28.2

FY17F
13.5
13.5
13.5
6.5
8.9
5.3
7.4
8.7
72.2
21.6
18.4
15.8
35.6
105.1
39.1
25.0

FY18F
12.9
12.9
12.9
6.5
9.5
5.4
7.0
8.3
71.4
21.0
17.8
15.1
35.4
100.3
41.5
24.4

FY14
1.1
(9.5)
(13.4)
(13.4)

FY15
5.0
(2.4)
(7.2)
(7.2)

FY16F
4.6
7.0
0.8
0.8

FY17F
6.5
(3.8)
(7.1)
(7.1)

FY18F
9.2
6.3
4.9
4.9

Year-end 31 Mar
EBITDA
Change in working capital
Other operating cas hflow
Cashflow from operations
Capital expenditure
Free cas hflow
Reduction in inves tm ents
Inc in other LT liabilities
Adjus tm ents
CF after investing acts
Cas h dividends
Debt is s ue
Others
CF from financial acts
Net cas hflow
Beginning cas h
Ending cash
Ending net debt

FY14
177,607
2,050
-4,059
175,598
-41,482
134,116
-13,799
6,750
-4,609
122,458
-211,427
-11,272
1,776
-220,923
-98,465
622,360
523,895
-522,114

FY15
173,354
37,504
-15,555
195,302
-49,923
145,380
9,615
4,826
-982
158,838
-154,994
2,302
884
-151,808
7,030
523,895
530,925
-526,842

FY16F
185,477
-2,621
-19,570
163,287
-50,420
112,866
2,127
5,687
-1,763
118,918
-208,198
-1,818
686
-209,330
-90,412
530,925
440,513
-438,248

FY17F
178,381
39,829
-21,319
196,892
-60,500
136,392
0
5,250
-1,123
140,519
-136,773
-136
668
-136,240
4,279
440,513
444,792
-442,663

FY18F
189,641
19,483
-23,944
185,181
-66,500
118,681
0
5,804
-920
123,565
-136,773
-136
989
-135,919
-12,354
444,792
432,438
-430,444

FY14
523,895
82,410
55,681
124,850
786,836
37,749
198,121
1,022,706
16,943
563,729
580,672
1,781
15,572
598,026
636
63,164
360,881
424,045
1,022,706

FY15
530,925
85,219
61,838
154,856
832,838
28,134
224,846
1,085,818
20,833
636,315
657,148
4,083
20,398
681,629
658
63,164
340,367
403,531
1,085,818

FY16F
440,513
93,463
67,440
148,105
749,521
26,007
250,850
1,026,379
23,910
637,713
661,623
2,265
26,085
689,973
659
63,164
272,584
335,748
1,026,379

FY17F
444,792
94,576
64,310
159,507
763,185
26,007
284,827
1,074,019
28,179
682,657
710,837
2,129
31,335
744,301
659
63,164
265,896
329,059
1,074,019

FY18F
432,438
102,046
59,141
173,031
766,657
26,007
321,961
1,114,625
30,352
715,793
746,146
1,994
37,139
785,279
659
63,164
265,524
328,687
1,114,625

FY14
23.9
23.7
67.1
29.0

FY15
21.7
22.0
63.9
20.7

FY16F
22.2
22.2
53.2
27.4

FY17F
20.6
20.6
52.1
18.0

FY18F
21.6
21.6
52.0
18.0

FY14
48.4
125.8
35.3

FY15
41.3
122.0
39.2

FY16F
42.2
116.9
40.5

FY17F
41.6
104.9
41.5

FY18F
39.8
87.3
41.4

Balance Sheet (INR mn)


As at 31 Mar
Cas h & equivalents
Accounts receivable
Inventories
Other current as s ets
Total current as s ets
LT inves tm ents
Fixed as s ets
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Other LT liabilities
Total liabilities
Minority interes t
Com m on s tock
Retained earnings
Total s hareholders ' equity
Total equity & liabilities

Per share
Reported EPS (INR)
Norm EPS (INR)
BVPS (INR)
DPS (INR)

Activity (days)
Days receivable
Days inventory
Days payable

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

India Coalfields and rail/port infrastructure

Focus on three arterial rail links for


augmenting coal evacuation ToriShivpur-Kathotia (CCL, Jharkhand),
East and East-West Corridor (SECL,
Chhattisgarh) and JharsugudaBarpali-Saradega + Angul-Kalinga
(MCL, Odisha).

Work on these critical rail links has


picked up pace, key constraints of
land acquisition (incl. R&R) and
forest clearances are being
addressed. Evacuation capacity can
be augmented by ~250-300mtpa
when these rail links are in place.

In addition, work on 60 spur rail lines


is also targeted for completion over
the next 5 years.

CIL to invest INR60bn in six rail


projects Tori-Shivapur-Hazaribagh,
Mekhlaiganj-Pipawar, Jharsugda
and Sardegha, Angul and Kalinga
(Orissa) Barud-Bukhdebpur and
Barud-Annupur (Chhattisgarh).

CIL would also invest in: [1] build out


of road infrastructure for linking the
mines with the proposed railway
tracks and [2] procurement of railway
wagons.

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

17

Railways Status of three trunk rail-links

Feedback across channel checks


suggests that build-out of the trunk
rail links (one each in Odisha,
Jharkhand and Chhattisgarh) is
progressing broadly as per indicated
timelines, suggesting incremental
evacuation capacity being available
from FY18 (Jharsuguda-BarpaliSaradega), FY19 (Tori-Shivpur) and
FY20 (Dharamjaigarh-Kharsia)
onwards.
We expect the Odisha rail link to be
fully operational by March 2017 and
Tori-Shivpur single line + East Rail
Corridor to be completed by Dec
2017

Coal India Status of three trunk rail-links (Jharkhand, Odisha, Chhattisgarh) for coal evacuation

Location
Length of rail link (km)
Evacuation Capacity (mtpa)
Project Cost (INR bn)

Tori-Shivpur-Kathautia

Jharsuguda-Barpali-Saradega

East Rail Corridor (ERC)/


East West Rail Corridor (EWRC)

North Karanpura, Jharkhand


92
100
36.0

Ib Valley, Odisha
53
95
10.1

Mand-Raigarh, Chhattisgarh
168
150
65.6

Project Segments

[1] Tori-Shivpur (44km)

Linked Coal Blocks

[2] Shivpur-Kathautia (48km)


Magadh, Amrapali

Implementation Mode

Build-out Status

Commissioning Timeline

Tori-Shivpur: Customer Deposit


(Line #1) + JV (Line #2,3)
Shivpur-Kathotia: JV
Tori-Shivpur: Possession of
24% of land from Jharkhand
Govt. w as outstanding as of Dec
2015
Shivpur-Kathautia: Forest
Clearance (Stage II) pending
Tori-Shivpur : Dec-2017
Shivpur-Kathotia : Mar-2020

Jharsuguda-Saradega

Basundhara, Garjanbahal,
Siarmal, Kulda
Customer Deposit (Line #1)
JV (Line #2,3)

[1] Kharsia - Dharamjaigarh (74km)


+ Dharamjaigarh - Korba (62km)
[2] Gevra Rd - Pendra Rd (135km)
Korba, Gare Pelma, Mand Raigarh
JV

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
underw ay.
EWRC: Assessments & land
surveys underw ay, Forest
Clearance (Stage II) is WIP

Jharsuguda-Barpali : Sep-2016
Barpali-Saradega : Mar-2017

ERC (Phase #1) : Mar-2018/2019


EWRC: Mar-2019

Source: Ministry of Coal, Railways Ministry, company data, Nomura research

18

India Thermal coal demand/supply balance

Demand: We expect thermal coal


consumption (demand) from utilities at
682mt in FY18F, implying FY15-18F
CAGR of ~7% We forecast overall
demand for thermal coal to rise to
914mt in FY18 (3-yr CAGR of ~6%).

Domestic supply: We expect


domestic thermal coal supply to rise to
786mt in FY18F, implying a FY15-18F
CAGR of 9%. Within this, we build in
109mt of supply from captive coal
blocks in FY18F (vs. ~75mt in FY16).
In the context of GOIs targeted coal
production of ~1.5bn tons by FY20,
our domestic coal supply forecast is
conservative.

Imports: Provisional data suggests


thermal coal imports at 136mt in
FY16, down 19% YoY. We expect a
healthier pick-up in electricity and
industry demand. We forecast thermal
coal imports to rise 4% in FY17, and
decline 4% in FY18F.

India - Thermal coal demand/supply scenario

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
25%
20%

Key items to monitor in assessing


the demand supply gap [1] Startup of trunk rail links, [2] Uptick in
captive coal supply after lease
transfers and in the context of
negative bids, [3] Captive coal output
from PSUs, particularly NTPC.

110,000

Requirement (Mn kWh) -- RHS


Requirement growth (%) -- LHS

100,000

India Coal-fired generation and PLF


PLF for coal-fired capacity remains in 60-65% range
85%

90

Coal-fired Generation (bn kWh) [RHS]


Coal-fired PLF [LHS]

80%

80

75%

15%

70

90,000

70%

10%

60

80,000

65%

5%
70,000

0%

50

60%

-5%

60,000

55%

40

-10%

50,000

50%

30

Mar-16

Nov-15

Mar-15

Jul-15

Nov-14

Mar-14

Jul-14

Nov-13

Mar-13

Jul-13

Nov-12

Mar-12

Jul-12

Nov-11

Mar-11

Jul-11

Nov-10

Jul-10

Mar-16

Nov-15

Mar-15

Jul-15

Nov-14

Mar-14

Jul-14

Nov-13

Mar-13

Jul-13

Nov-12

Mar-12

Jul-12

Nov-11

Mar-11

Jul-11

Nov-10

Jul-10

Source: CEA, Nomura estimates

Note: Mar-2016 generation is tentative | Source: CEA, Nomura estimates

19

India Thermal coal imports and domestic supply

For FY15, overall coal imports were


212mt (168mt thermal coal + 44mt
coking coal).
For FY16, provisional figures
suggests total coal import of ~180mt,
of which thermal coal imports is 135140mt. .

India Coal supply/demand gap & imports (mt)


Indias yawning domestic coal deficit is evident
FY11

FY12

FY13

FY14

FY15

Dem and

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

132.2

160.7

204.1

166.9

178.8

68.9

102.8

145.8

166.6

212.1

-6%

49%

42%

14%

27%

Gap
Total Im ports
YoY (%)

India Coal imports by countries


~56% of coal imports are sourced from Indonesia
Total (m t)
Indonesia
Australia
South Africa
USA
New Zealand
Others
Total (INR bn)

FY11
68.9
35.9
15.9
11.2
1.8
0.8
3.2
415.5

FY12
102.8
55.3
27.8
12.2
3.0
1.0
3.6
788.4

FY13
145.8
82.4
30.5
20.3
6.4
1.0
5.2
868.5

FY14
FY15
166.9
212.1
101.9
118.2
34.5
47.5
20.6
30.7
3.65
4.27
1.13
NA
5.10
11.43
923.3 1,045.2

Source: Ministry of Coal (Govt of India)

Source: Press Information Bureau, Ministry of Coal (Govt of India)

Coal India Production and Offtake (mt)


Production/offtake at 537/mt/532mt in FY16
650

Coal production SCCL and Captive mines (mt)


Captive coal production to rise rapidly from FY17F
110

Production
600

100

Offtake
90

550

SCCL
Captive Blocks (incl. PSUs/UMPPs)

80
70

500

60
50

450

40
400

30
20

350
FY11

FY12

FY13

FY14

FY15

Source: Company data, Nomura estimates

FY16

FY17F FY18F

FY11

FY12

FY13

FY14

FY15

FY16 FY17F FY18F

Source: Company data, Ministry of Coal (Govt of India), PIB, Nomura estimates

Source: Ministry of Coal, ICMW, Nomura research

20

CIL New Fuel Supply Agreements (FSAs)

New FSAs peg trigger level


(guaranteed coal supply) at 80% of
ACQ. Within this, committed domestic
coal supply is 65% for FY14/FY15,
67% for FY16 and 75% from FY17
onwards; balance to be made up via
imports.
The tenure of the FSA is the earlier of
20 years or life of the project; a
review is possible by either party on
completion 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 long
term PPAs with Discoms (directly, or
via PTCs), grossed-up by 10%.
Minimum tenure of a long-term PPA is
pegged at 7 years.
Purchaser (IPP or state/central
Genco) can modify the proportion of
capacity tied-up in long-term PPAs, if
required, only once a year.
CIL has the right to reset penalty
levels pursuant to fresh directives by
the government (MoC).

Fuel supply agreements (FSAs) for power companies whats new?


Clause
Force
Majeure

FSAs (for projects com m issioned post March 31, 2009)


Additional clauses covering third-party operational risk
- Law & Order problem affecting coal production / transport
- Failure of supply of pow er from Pow er Supplier(s)
Side Agreement for import of coal has separate clauses
Im ported
- IPP to confirm upfront acceptance/surrender of imported coal
Coal
- IPP may review 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 dow n of coal only for capacity linked to long-term PPAs
PPA
- ACQ = 110% of net capacity tied-up in long-term PPAs
- Certification (from Regulator) of sale to discom, is required
Penalty
- Graded structure, but distinct for imported/domestic coal
Structure
- Minimum (trigger) level is <80% of ACQ
- Minimum penalty = 1.5% (5% if only domestic coal opted)

FSAs (for projects com m issioned by March 31, 2009)


Traditional conditionalities included
- Flood, mine fire, civil disturbance
- Industry w ide strikes, epidemic
- Delays on part of Government, logistics constraints
- Any additional cost to be borne by buyers

- PPA for not less than 50% of installed capacity


- Draw dow n of coal not linked to long-term PPA capacity
- Graded structure
- Minimum (trigger) level is <90% of ACQ
- Minimum penalty = 10%

Source: Company data, Nomura research

Penalty structure in FSAs (FY14-15) Old vs. New


Proposed FSA w ith Trigger level at 80% of ACQ
Shortfal l (from tri gger l evel )
Impl i ed Range
<= 15%
65% to 80%
>15% and <= 20%
60% to 65%
>20% and <= 25%
55% to 60%
>25% and <= 30%
50% to 55%
>30%
less than 50%
Excess (beyond tri gger l evel )
Range
<= 5%
90% to 95%
>5% and <= 10%
95% to 100%
>10%
above 100%
Pre-FY10 FSAs w ith Trigger level at 90% of ACQ
Shortfal l (from tri gger l evel )
Impl i ed Range
<= 5%
85% to 90%
>5% and <= 10%
80% to 85%
>10%
less than 80%
Excess (beyond tri gger l evel )
Range
<= 5%
90% to 95%
>5% and <= 10%
95% to 100%
>10%
above 100%

Source: Company data, Nomura research

New FSAs Committed coal supply mix


as a % of ACQ

Penal ty (%)
1.5
5.0
10.0
20.0
40.0
Incenti ve (%)
10.0
20.0
40.0

Overall
Domestic Coal
Imported Coal

FY13

FY14

FY15

FY16

FY17*

80%
65%
15%

80%
65%
15%

80%
65%
15%

80%
67%
13%

80%
75%
5%

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

Penal ty (%)
10.0
20.0
40.0
Incenti ve (%)
10.0
20.0
40.0

21

New FSAs Side Agreement for Import of Coal

Clause
Delivery Point

For assessing supply obligations, 1


ton of imported coal = 1.5ton of
domestic coal

Obligation to accept
imported coal
Quantity/Quality of
Imported coal
Weighment of Coal

Penalty = Quantum of shortfall *


graded penalty level * corresponding
price of domestic coal

We believe the year-end incentives


are likely to diminish progressively
from FY16F itself as the company is
forced to divert the excess coal for
supply under the new FSAs

Salient Features of Side Agreement for import of coal

In relation to coal imports, the Side


Agreement safeguards CILs
payment risks and covers its
intermediating costs by imposing a
service charge

CIL may supply high grade domestic


coal under FSAs with CPPs for up to
25% of ACQ as part of the imported
coal supply commitment.
Up to 5% of ACQ can be offered
from loading points at SECL, MCL
and CCL.

Applicable Laws

Explanation
Pow er plant for w hich coal is consigned.
All law s including those law s effected by any Province/State/Country having jurisdiction over source of
imported coal.
Once agreed, purchaser cannot reject or not accept the coal consignment. In case of refusal, CIL has the right
to recover base price and all costs incurred on bringing the coal
1ton of imported coal = 1.5ton of domestic coal, for purpose of meeting quantity obligations

Weight recorded at the time of unloading at delivery point.


Includes the Base Price (CF price + costs up to loading into railw ay w agons), as notified by CIL, and other
Price of Imported Coal
taxes, duties, levies and cess.
Service Charge
CIL to levy 2% service charge of CIF Price plus all applicable statutory charges.
Security Deposit
at the rate of 6% on sum of base price and statutory charges; issued in form of a Bank guarantee w ithin 15
(refundable)
days of quantity/price notification by CIL
Currently cost plus pricing follow s. 100% payment to be made in advance by the Purchaser. Difference in
Payment realization
price to be paid w ithin 3 days of supplementary invoicing.
Source: Company data, Nomura research

CIL Penalty structure for supply shortfall under new FSAs


Supply
Level of Delivery/ Lifting of Coal
FY13-15
Customer opts for receiving both domestic and imported coal
Below 100% but upto 80% of ACQ
NIL
Below 80% but upto 75% of ACQ
Imported Coal Supply
Below 75% but upto 67% of ACQ
0-1.5
Below 67% but upto 65% of ACQ
Customer opts for receiving only domestic coal
Below 75% but upto 70% of ACQ
Below 70% but upto 67% of ACQ
Below 67% but upto 65% of ACQ
Domestic Coal Supply Below 65% but upto 60% of ACQ
0-5
Below 60% but upto 55% of ACQ
5-10
Below 55% but upto 50% of ACQ
10-20
Below 50% of ACQ
20-40

FY16
NIL
0-1.5
0-2
2-7
7-20

FY17
onwards
NIL
0-1.5
0-5
5-10
10-20
20-40

20-40

Source: Ministry of Power, Ministry of Coal, Nomura research

22

Captive coal blocks The de-allocation saga

Since CY1993, the GOI allocated 218


coal blocks for captive use to public
and private firms via 3 modes [1] Via
36 screening committees, [2] Govt
dispensation route, [3] Allocation for
UMPPs (12 coal blocks).
Further, GOI allocated 17 coal blocks
under the new auction rules (notified
in Feb-2012). Total 235 coal blocks
had ~55bn tons geological reserves.
40% of coal blocks allocated have end
use specified as power generation.
Of the 218 coal blocks, 23 were deallocated by Jun-2011 (3 were
restored back to NTPC in Jan-2013).
Further, de-allocation notices were
given to allottees of 31 coal blocks in
Feb-2014.
In Sep-2014, the Supreme Court (in
response to a PIL filed in Sep-2012 to
examine arbitrariness & legality in
awarding coal blocks) ordered deallocation for 204 coal blocks 12
coal blocks for UMPPs and 2 others
were exempted.
The producing coal blocks (53mt
production in FY15) were given time
up to Mar 2015 to wind up operations,
post which new winners (in auctions)
or custodian (CIL) would operate the
blocks.

Coal Blocks Only 4 out of 46 producing/ready-to-produce coal blocks were not de-allocated by the SC
S No Com pany Nam e

Block Nam e

Designated end-use -- Pow er


1
CESC
Sarisatolli
2
DVC
Barjora (North)
3
Hindalco
Talabira-I
4
PSEB
Panchw ara Central
5
Jindal Steel & Pow er
Gare Palma IV 2 & 3
6
Reliance Pow er *
Moher & Moher Amlori Ext.
7
WBSEB
Tara (East & West)
8
WBPDCL
Pachw ara (North)
9
RRVUNL
Parsa (East) &
Kanta Basan
10 WBPDCL
Barjora
11 WBPDCL
Gangaramchak &
Gangaramchak Bhadulia
12

KPCL

Baranj I-IV, Kiloni &


Manora Deep
13 GVK Pow er
Tokisud North
14 NTPC
Pakri Barw adih
15 DVC
Khagra Joydev
Total producing coal blocks as of FY14
Designated end-use -- Iron & Steel
15 Jindal Steel & Pow er
Gare Palma IV/1
16 Monnet Ispat
Gare Palma IV/5
17 Jayasw al Neco
Gare Palma IV/4
18 Prakash Industries
Chotia
19 Sunflag Iron Steel
Belgaon
20 Usha Martin
Kathautia
21 Electrosteel Castings
Parbatpur
22 Sarda Energy
Gare Palma IV/7
23 SAIL
Tasra
24 B.S.Ispat
Marki Mangli-I
25 Shree Virangana Steel Marki Mangli-II
26 Shree Virangana Steel Marki Mangli-Ill
27 Sova Ispat & Jai Balaji
Ardhagram
Total producing coal blocks as of FY14
Designated end-use -- Com m ercial
28 ANPMDL
Namchik Namphuk
29 BLA Industries
Gotituria (East & West)
30 MPSMCL
Amelia North
31 WBMTDCL
Trans Damodar
32 MPSMDC
Bicharpur
Total producing coal blocks as of FY14
Designated End use - Cem ent
34 Jaiprakash Associates Mandla North
35 Prism Cement
Sial Ghogri
Total

Linked project / plant

Budge Budge
Mejia TPS-II
CPP
Ropar, Bhatinda, Lehra Mohabbat
Tamnar TPP
Sasan UMPP
Projects of WBPDCL - Bandel,
Santaldih, Sagardighi
Chhabra-II & Kalisindh TPP
Bakreshw ar & Kolaghat TPS
Bakreshw ar & Kolaghat TPS
Bellary TPS U-2
Goindw al Sahib
Barh-II, Kudgi, Lara
Mejia TPS-II
22

Capacity
PPA-tied
(MW) Capacity (MW)

Fuel cost Production Govt


pass-thru start date / Pvt
Oct-02
Mar-11
Oct-03
Mar-06
Jun-07
Sep-12
1997
Mar-14
Feb-13

P
G
P
G
P
P
G
G
G

3.1
1.8
2.2
6.9
5.3
0.2
3.0

Yes

Mar-09
Aug-13

G
G

500

Yes

Aug-08

540
3720
500

Capped
Yes
Yes

FY15F
FY15F
FY15F

P
G
G

750
500
750
2620
1000
3960

750
500
n/a
2620
150
3960

Yes
Yes
n/a
Yes
No
Yes

2030

2030

Yes

1700

1700

Yes

2310

2310

500
540
3720
500

CPP
CPP
CPP
CPP
CPP
CPP
Coking coal block
CPP
Coking coal block
CPP
CPP
CPP
CPP
13
NA
Gadarw ara TPS
JPVL Nigrie
Multiple (Particularly for SMEs)
0.5mtpa for linked Cement plant
4
CPP
CPP

NA
135
1320
NA
NA

Production (m t)
Geological
FY13
FY14 FY15F Reserves (m t)

NA
47
495
NA
NA

NA
Yes
Yes
NA
NA

Feb-99
Jun-04
Sep-06
Jul-06
Dec-07
Dec-08
Dec-08
Mar-09
Nov-09
Mar-11
Dec-11
May-13
Nov-12

P
P
P
P
P
P
P
P
G
P
P
P
P

Apr-07
Oct-04
Dec-13
Apr-12
FY15F

G
P
G
G
G

FY15F
FY15F

3.0
1.5
2.5
6.0
6.2
1.7
2.3
0.1
1.2

2.8
2.2
2.5
7.0
6.3
2.0
2.0
4.0
5.5

140.5
85.5
22.6
562.0
246.0
600.0
210.2
125.7
360.0

0.3

0.0
0.2

0.5
0.0

8.0
14.0

2.5

2.5

2.5

152.5
92.3
1,600.0
196.2

25.6

27.3

NA
NA
NA
37.3

6.0
0.8
0.5
1.0
0.2
0.6
0.1
1.0
0.1
0.1

6.0
0.9
0.4
1.0
0.1
0.8
0.5
1.2
0.1
0.1

6.0
1.0
1.0
1.0
0.2
0.8
0.6
1.2
0.1
0.1

0.3

0.3

0.4

124.0
126.0
125.0
34.5
15.3
29.8
231.2
156.0
285.0
34.3
19.0

0.1
10.7

0.3
11.6

0.3
12.7

243.0

27.0
9.3
101.2
103.2
36.0

0.7

Ops Suspended
0.3
0.3
0.0
1.5
0.7
1.0
0.0
1.0
2.8

37.0

0.0
0.1
52.9

195.0
30.4
6,340.5

0.3

0.1
0.3
0.4

P
P
39.9

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), only
two are currently in production | Source: Ministry of Coal, Nomura research

23

Captive coal blocks Progress on auctions

Post the Supreme Courts cancellation


of erstwhile coal block allocations, GoI
has auctioned 34 coal blocks in three
phases 18 operational coal blocks in
phase#1, 13 ready to produce coal
blocks in phase#2 and 3 blocks for
non-regulated sectors in phase#3.
The total extractable reserves of the
34 coal blocks are ~1.9bn tons with
the 18 operational blocks accounting
for half of it. Out of the 34 coal blocks,
11 blocks have been auctioned for
end-use Power 6 each in phase#1
and 5 in phase#2.

The 11 blocks auctioned for Power


have total extractable reserves of
~1.2bn tons. All these blocks saw
aggressive bidding in the reverse eauctions (i.e. saw negative bid prices).

Indicative GCV of coal reserves for


power sector ranges from 32005400kCal/kg; typical GCV of balance
coal reserves is 3800-4000kCal/kg.

GoI had planned to auction 10 blocks


for non-regulated sectors in phase#3
but only 3 of these were successfully
bid in phase#3 held in Aug-2015.

8 coal blocks were lined up for


auctioning in Phase#4 in Jan/Feb
2016. However, auctions have been
postponed due to lack of demand

Coal Blocks Details of 34 coal blocks auctioned in Phase#1, #2 and #3


Tranche

Auction
Date

Pow er
1
14-Feb
1
15-Feb
1
16-Feb
1
17-Feb
1
18-Feb
1
19-Feb
2
4-Mar
2
5-Mar
2
7-Mar
2
8-Mar
2
9-Mar
Non Pow er
1
14-Feb
1
15-Feb
1
15-Feb
1
16-Feb
1
16-Feb
1
17-Feb
1
17-Feb
1
18-Feb
1
19-Feb
1
20-Feb
1
21-Feb
1
22-Feb
2
4-Mar
2
4-Mar
2
5-Mar
2
7-Mar
2
7-Mar
2
8-Mar
2
8-Mar
2
9-Mar
3
11-Aug
3
11-Aug
3
13-Aug

Coal Blocks

Winner

Talabira-I
Sarisatolli
Trans Damodar
Amelia North
Tokisud North
Gare Palma IV/2 & IV/3
Jitpur
Mandakini-A
Tara
Ganeshpur
Utkal-C

GMR Energy
CESC
Durgapur Projects
JPVL
Essar Pow er
JSPL
Adani Pow er
MEML
JSPL
GMR Energy
Monnet Pow er

Sial Ghogri
Belgaon
Kathautia
Mandla North
Marki Mangli-Ill
Ardhagram
Chotia
Gare Palma IV/5
Bicharpur
Gare Palma IV/4
Gare Palma IV/1
Gare Palma IV/7
Brinda & Sisai
Moitra
Meral
Dumri
Nerad Malegaon
Mandla-South
Gare-Palma IV/8
Lohari
Marki Mangli-I
Bhaskarpara
Majra

Reliance Cement
Sunflag Iron & Steel
Hindalco
JP Associates
BS Ispat
OCL Iron & Steel
Balco
Hindalco
Ultratech Cement
Hindalco
Balco
Monnet Ispat
Usha Martin
JSW Steel
Trimula Industries
Hindalco
Indrajit Pow er
Jaypee Cement
Ambuja Cements
Araanya Mines
Topsw orth Urja
Crest Steel & Pow er
Jaypee Cement

Bid Price
(Rs/ton)

Extractable
Res. (m t)

Mine plan
(m tpa)

Coal GCV
(kCal/kg)

CIL FSA price


(Rs/ton)

(478)
(470)
(940)
(712)
(1,110)
(108)
(302)
(650)
(126)
(704)
(770)

28.8
83.0
48.4
70.3
52.0
187.2
65.5
287.9
166.9
91.8
123.9

3.0
3.5
1.0
2.8
2.3
6.3
2.5
7.5
6.0
4.0
3.4

3600-4200
3200-4800
3600-5800
3600-5400
3200-5800
3200-5400
3200-4800
3200-6400
3200-5400
3200-4800
3200-4200

610-700
550-970
610-1600
610-1400
550-1600
550-1400
610-1070
610-3490
610-1540
610-1070
610-770

1,402
1,785
2,860
2,502
918
2,302
3,025
3,502
3,003
3,001
1,585
2,619
1,804
1,512
727
2,127
660
1,852
2,291
2,438
715
755
1,230

5.7
14.2
26.0
84.0
4.2
19.3
24.0
42.4
29.1
27.4
126.5
56.6
25.4
29.9
12.7
46.1
10.3
13.4
11.8
9.0
10.0
24.1
14.9

0.3
0.3
0.8
1.5
0.2
0.4
1.0
1.0
0.8
1.0
6.0
1.2
0.7
1.0
0.4
1.0
0.4
0.3
1.2
0.2
0.3
1.0
0.5

3600-5800
4800-5800
5400-6400
4200-5400
3600-5400
3600-6400
3600-5800
4200-6400
3200-5800
4200-5400
3200-4200
3200-4800
3200-6700
3600-4800
4200-6700
3200-6400
3200-5400
4200-5800
3200-4800
4200-6700
4200-4800
3600-6400
4200-5800

820-2150
1310-2150
1890-3490
950-1890
820-1890
820-3490
820-2150
950-3490
740-2150
950-3490
740-950
740-1310
740-3890
820-1310
950-3890
740-3490
740-1890
950-2150
740-1310
950-3890
950-1070
610-3490
950-2150

Source: Ministry of Coal, Nomura research | Note JSPLs winning bids for Gare Palma IV/2 & IV/3 and Tara coal blocks + Balcos winning bid for Gare Palma
IV/1 coal blocks have not been accepted by the GoI (under litigation); Res. = Reserves

24

Captive coal blocks Allotment to PSUs

Government of India allotted 27 coal


blocks to Central & State PSUs in
March 2015.

NTPC was allotted the five captive


coal blocks Chhatti Bariatu, Chatti
Bariatu (South), Dulanga, Kerandari
and Talaipalli. These coal blocks were
de-allocated by the Supreme Court
(SC) in September 2014.

Separately, in September 2015, the


Ministry of Coal allotted the
Mandakini-B coal block (in Odisha,
having extractable reserves of 1.2bn
tons) to NTPC for its proposed
4000MW project in Telangana.

Coal Blocks Details of 27 coal blocks allotted to PSUs


S.No.

Coal Block

Schedule-II m ines
1
Khagra Joydev
2
Baranj I to IV, Kiloni, Manora Deep
3
Pachhw ara Central
4
Parsa East, Kanta Basan
5
Barjora North
6
Barjora
7
Gangaramchak, Gangaramchak - Bhadulia
8
Tara (East) & (West)
9
Pachhw ara North
Schedule-III m ines
1
Badam
2
Gare Palma Sector III
3
Gidhmuri, Paturia
4
Gare Palma Sector I
5
Banhardih
6
Gare Palma Sector II
7
Kerandari
8
Talaipalli
9
Chatti Bariatu, Chatti Bariatu South
10
Dulanga
11
Manoharpur, Dipside Manoharpur
12
Parsa
13
Rajbar E & D
14
Tadicherla - I
15
Naini
16
Sitanala
17
Saharpur Jamarpani
18
Kasta (East)

Geological
Reserves (m t)

New Allottee

Prior Allottee

DVC
KPCL
PSPCL
RRVUNL
WBPDCL
WBPDCL
WBPDCL
WBPDCL
WBPDCL

DVC
KPCL
PSEB
RRVUNL
DVC
WBPDCL
WBPDCL
WBSEB
WBPDCL

196.2
152.5
562.0
360.0
85.5
8.0
14.0
210.2
125.7

Bihar Genco
CSPGCL
CSPGCL
GSECL
JUUNL
Mahagenco
NTPC
NTPC
NTPC
NTPC
OCPL
RRVUNL
Tenughat Vidyut
TGenco
SCCL
SAIL
UPRUVNL
WBPDCL

Tenughat Vidyut
GIDC
Chhattisgarh SEB
CMDC
JSEB
MSMC & TNSEB
NTPC
NTPC
NTPC
NTPC
OPCL
Chhattisgarh SEB
Tenughat Vidyut
APGenco
GMDC & PIPDICL
SAIL
DVC
DVC

144.6
210.2
80.3
900.0
400.0
768.0
229.0
965.0
597.0
260.0
531.7
150.0
385.0
61.3
500.0
108.8
600.0
105.0

Source: Ministry of Coal, Nomura research

25

Captive coal blocks Block Linkages

Bridge Linkage is a short-term coal


linkage (for a period of up to three
years) to meet the coal requirement of
eligible Central / State owned power
plants until coal is available from their
respective linked/allotted coal
mine/block.
Coal will be supplied by CIL on a best
effort basis after meeting existing
contractual obligations. CIL shall
endeavor to supply 75% of 'Agreed
Requirement' of coal, i.e., 90% of
normative coal requirement of the
plant at 85% PLF.
So far, 19 Central/State owned power
plants with an aggregate capacity of
24.6GW have been granted Bridge
Linkage.
At 60% utilization level, annualized
coal requirement of this capacity is
~90mt. However, if the power plants
start generation as per indicated
timeline, potential demand for coal
would be 20-45mt/yr over the next
three years.

Coal India 24.6GW of PSU capacity has granted coal supply under Block Linkage

Plant Name
Kudgi - I
Barh-II
Tanda-II
Barethi
Lara
Darlipalli
Bilhaur

Capacity (MW)
3x800
2,400
2x660
1,320
2x660
1,320
4x660
2,640
2x800
1,600
2x800
1,600
2x660
1,320
12,200

Captive Coal Block


Bhalumuda
Chatti Bariatu & Chatti Bariatu (South)
Kerandari
Banai coal block
Talaipalli
Dulanga
Kudanali-Luburi

UPRVUNL

Obra C
Panki
Jawaharpur
Harduaganj

2x660
1x660
2x660
1x660

1,320
660
1,320
660

Saharpur-Jamarpani
Saharpur-Jamarpani
Saharpur-Jamarpani
Saharpur-Jamarpani

OPGCL

IB Thermal

2x660

KPCL

Bellary Unit 3
Yermarus

CSPGCL
TSPGCL

NTPC

Total (NTPC)

Scheduled Start
Jun-21
Nov-19
Nov-19
May-20
Nov-19
Nov-19
Aug-22

Indicated start-up of power plant


Unit 1
Unit 2
Unit 3
Apr-16
Jul-16
Jan-17
Nov-14
Feb-16
Sep-18
Mar-19
2019-20
Dec-16
Jun-17
Feb-18
Aug-18
2019-20

Jun-20
Jun-20
Jun-20
Jun-20

Sep-20
Sep-20
Apr-20
Sep-19

1,320 Manoharpur & Dipside of Manoharpur

Mar-19

Mar-18

1x700
2x800

700 Deocha Pachami Dewanganj - Harinsingha


1,600 Deocha Pachami Dewanganj - Harinsingha

Jan-21
Jan-21

Mar-16
Mar-16

May-16

Marwa

2x500

1,000 Gare Palma - III

May-19

Mar-16

May-16

Kakatiya

1x600

600 Tadicherla - I

2018-19

Mahagenco

Koradi
3x660
Chandrapur (U8,9) 2x500
Parli (U8)
1x250
Total (State Gencos)
Source:
Grant
TotalMinistry of Coal, Nomura research

1,980 Gare Palma - II


1,000 Gare Palma - II
250 Gare Palma - II
12,410
24,610

Apr-19
Apr-19
Apr-19

Oct-15 Synchronized
Dec-15
Mar-16
Mar-16

Mar-16
Apr-16

Jun-16

Source: Ministry of Coal, Nomura research

26

New FSAs Eligible Power Generation Capacity

In February 2012 and June 2013, the


GOI ministries shortlisted power
projects which were to be eligible for
securing FSAs with CIL.

Applicable for eligible projects


commissioned post April 1, 2009.
Eligibility = In receipt of a LoA +
project is commissioned OR included
in CEAs list of projects scheduled for
commissioning by FY2015.

~67GW capacity has been identified


on this parameter for sign-up of longterm FSAs. Of this, 48.4GW has
actually been commissioned by
FY2015; the balance 18.4GW is
expected to be commissioned over
the next 20 months (up to 1QFY18).

Drawdown of coal supply under the


new FSAs is permitted for capacity
tied up in long-term PPAs.

New FSAs permit inter-plant


transfer of coal subject to certain
conditions

Further, the GOI is pursuing options


aggressively for coal swaps and
rationalization of coal linkages.

Eligible generation capacity + coal requirement as per the FSAs

S. No. Com m issioning


Up to March 2009
1
FY09-10
2
FY10-11
3
FY11-12
4
FY12-13
Total (1 to 4)
5
FY13-14
6
FY14-15
Total (5 to 6)
Total (FY09-15)

Capacity
(MW)
67,370
5,395
6,205
16,671
9,835
38,106
10,845
11,127
21,972
60,078

Feb-2012 List
FSA Qty Com m itted Qty
(m t) @65% FSA (m t)
304.8
198.1
24.4
15.8
24.9
16.2
71.6
46.5
39.7
25.8
160.6
104.4
44.2
28.7
49.0
31.8
93.2
60.6
253.8
165.0

MoC's Oct-2015 List


Capacity
FSA Qty Com m itted Qty
(MW)
(m t) @65% FSA (m t)
67,370
304.8
198.1
5,645
24.4
15.8
5,705
24.9
16.2
12,497
53.8
34.9
11,190
46.3
30.1
35,037
149.3
97.0
6,210
22.4
14.5
7,147
25.3
16.4
13,357
47.7
31.0
48,394
197.0
128.0

Note: MoC document mentions overall capacity of the plant where we capture the % of linked capacity, thereby the slight deviation vs. MoCs
Oct-2015 list | Source: CEA, Ministry of Power, Ministry of Coal, Nomura research

27

New FSAs Eligible Projects/Capacity (contd..)


Projects within the 67GW bucket (eligible to secure FSAs) expected to be commissioned after FY15
S. No. Developer
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Hinduja
Ind. Bharat Pow er
India Bulls
Vedanta (Sterlite)
ACB (India)
ACB (India)
Athena
Corporate Pow er
Corporate Pow er
DVC
Hinduja
Ind. Bharat Pow er
India Bulls
India Bulls
Jhabua Pow er Ltd
JPVL
JPVL
JPVL
KVK. Nilanchal Pow er
Lanco
Lanco
Lanco

Project Nam e
Vizag TPP U-1
Ind Bharat U-I
Nasik U-2
Balco Unit 1-2
TRN Energy U-1
TRN Energy U-2
Singhtarai U-1
Matrishi, U-1
Matrishi, U-2
Bokaro Exp U-1
Vizag TPP U-2
Ind Bharat U-2
Nasik U-3
Nasik U-4
Jhabua Unit-1
Bara TPP U-1
Bara TPP U-2
Bara TPP U-3
Nilanchal U-1
Babandh U-1
Amarkantak U3
Amarkantak U4

Linked
LOA Qty
Capacity (MW)
(MT)
520
2.3
350
1.5
270
1.0
600
2.6
300
1.3
300
1.3
600
2.5
270
1.0
270
1.0
500
2.3
520
2.3
350
1.5
270
1.0
270
1.0
600
2.7
660
2.3
660
2.3
660
2.3
350
3.0
660
1.4
660
2.6
660
2.6

Note: MoC document mentions overall capacity of the plant where we capture
the % of linked capacity, thereby the slight deviation vs. MoCs Oct-2015 list

S. No. Developer
23
24
25

Maruti Clean Coal


Meenakshi Energy
Moser Baer

26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42

NLC JV (NPTL)
NTPC
NTPC
NTPC
NTPC JV
NTPV JV
NTPV JV
RKM Pow ergen
RKM Pow ergen
RKM Pow ergen
SKS Ispat
SKS Ispat
Thermal Pow ertech
UPRVUNL
UPRVUNL
Vedanta (Sterlite)
Vedanta (Sterlite)

Project Name

Linked
LOA Qty
Capacity (MW)
(MT)
Bandakhar TPP
300
1.3
Thamminapatnam TPP U-3
210
0.7
Anuppur U-1
1200
4.2
Tuticorin U-2
Barh U-1
Bongaigaon U-1
Bongaigaon U-2
Muzaffarpur Ext. U-4
Nabinagar U-1
Nabinagar U-2
Uchpinda U-1
Uchpinda U-2
Uchpinda U-3
Binjkote TPP U-1
Binjkote TPP U-2
Painampuram U-2
Anpara D U-6
Anpara D U-7
Talw andi Sabo U-2
Talw andi Sabo U-3
Grand Total

500
660
250
250
195
250
250
360
360
180
300
300
462
500
500
660
480
18,467

1.5
3.3
0.5
0.5
0.7
1.3
1.3
1.6
1.6
0.8
1.4
1.4
1.1
1.7
1.7
2.6
2.6
73.7

Note: MoC document mentions overall capacity of the plant where we capture the
% of linked capacity, thereby the slight deviation vs. MoCs Oct-2015 list
Source: CEA, Ministry of Coal, Nomura research

Source: CEA, Ministry of Coal, Nomura research

28

New FSAs Eligible Projects/Capacity (contd..)

~15GW capacity without an LoA


(coal linkage) approved by CCEA for
securing coal supply from CIL on a
best efforts basis

~10GW captive-coal dependent


capacity identified for securing coal
via tapering coal linkage. CIL will
supply coal to the eligible capacity
up to June 2016.

A new policy on supply of linkage


coal / auction of coal linkages for the
power sector is in the works.

Another list of 22.8GW capacity


having an LoA (coal linkage) and
scheduled for start-up between
FY2017-19 has been put out by the
Ministry of Power

Projects eligible to secure coal via tapering linkage


S. No.

Developer

Project Nam e

Com m issioned up to Mar-2015


1
Adani Pow er
Tiroda I U-2
2
Adani Pow er
Tiroda Ph-II U-1
3
Adhunik
Adhunik U-1
4
Adhunik
Adhunik U-2
5
CSPGCL
Marw a U-1
6
DB Pow er
DB Pow er (Chhatisgarh) U-2
7
DVC
Mejia TPS Ph-II U-2
8
DVC
Ragunathpur U-1
9
GMR Energy
Kamalanga U-2
10 GMR Energy
Kamalanga U-3
11 GSECL
Ukai U-6
12 KPCL
Bellary U-2
13 KSK Energy
KSK Mahanadi U-1
14 KSK Energy
KSK Mahanadi U-2
15 Vandana
Vandana Vidyut U-1
16 Vedanta (Sterlite) Jharsuguda U-3
17 Vedanta (Sterlite) Jharsuguda U-4
Expected to be com m issioned after Mar-2015
11 CSPGCL
Marw a U-2
20 DVC
Ragunathpur U-2
22 KSK Energy
KSK Mahanadi U-3
17 MAHAGENCO
Parli U-8
23 RKM
Uchpinda U-3
24 RKM
Uchpinda U-4
19 Vandana
Vandana Vidyut U-2
TOTAL

Linked
Capacity (MW)
140
660
270
270
500
600
500
600
200
350
500
500
600
600
135
400
600
500
600
600
250
180
150
135
9,840

15GW capacity approved by CCEA to secure coal from


CIL on a best efforts basis
S. No. Developer
1
2
3
4
5
6

Adani Pow er (Rajasthan)


Adani Pow er (Maharashtra)
Adani Pow er (Maharashtra)
KPCL
Lalitpur Energy
Lalitpur Energy

7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

MSPGCL
MSPGCL
GMR Chattisgarh
Essar
Jindal India
KPCL
KPCL
JV of SCCL & Telangana
MSPGCL
MSPGCL
MSPGCL
GMR
Monnet Ispat
GVK Pow er
GVK Pow er
Essar
Monnet Ispat

Project Nam e
Kaw ai U-2,3
Tiroda-II, U-2
Tiroda-II, U-3
Bellary U-3
Lalitpur U-1
Lalitpur U-2
Total
Chandrapur U-8
Koradi U-8
Raikheda U-1
Mahan U-1
Derang U-2
Yermarus U-1
Yermarus U-2
Adilabad U-1
Koradi U-9
Chandrapur U-9
Koradi U-10
Raikheda U-2
Malibrahmani U-2
Goindw al Sahib U-1
Goindw al Sahib U-2
Mahan U-2
Malibrahmani U-1
Total
Grand Total

Linked
Capacity (MW)
1320
660
660
700
660
660
4,660
500
660
685
600
600
800
800
600
660
500
660
685
525
270
270
600
525
9,940
14,600

Source: CEA, Ministry of Coal, Nomura research

Source: CEA, Ministry of Power, Ministry of Coal

29

Appendix A-1
Analyst Certification
We, Anirudh Gangahar and Archit Singhal, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred
to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures


The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.

Materially mentioned issuers


Issuer

Ticker

Price

Price date

Stock rating

Sector rating

Coal India

COAL IN

285.6 INR

09-May-2016

Buy

N/A

Coal India (COAL IN)

Disclosures

285.6 INR (09-May-2016) Buy

Rating and target price chart (three year history)


Date
21-Apr-16
18-Nov-15
24-Aug-15
10-Mar-15
11-Jun-14
17-Apr-14
13-Jan-14

Rating

Target price
310.00
401.00
407.00
417.00
443.00
315.00
320.00

Closing price
287.75
335.05
336.60
370.70
404.30
290.90
290.25

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our 12-month TP of INR310 is derived from a sum of the parts of: 1) FCFF of its 7.2bn tons of proven coal reserves as of FY17F (INR127/share); PV of its 8.3bn tons of probable coal
reserves (INR45/share); fair value of its balance coal resources of 45.4bn tons per the JORC Code (INR65/share); and FY17F cash on hand (INR73/share). The benchmark for this stock is the MSCI India
Index.
Risks that may impede the achievement of the target price [1] Divestment of up to a 10% stake in CIL in FY17 remains on GoIs agenda; the lingering overhang could continue to cap stock price
performance. [2] Inability to raise notified coal prices sufficiently due to regulatory/policy diktats and drop in e-auction realizations leads to a progressive decline in blended realization. [3] Adverse policy
decisions by the GoI such as curtailing offtake via e-auction, directing the deployment of cash in unrelated / sub-optimal avenues with ambiguous returns profile. [4] Delay in start-up of trunk rail links and
evacuation infrastructure critical for sustaining a high single digit y-y rise in offtake. [5] Demand for coal continues to remain lacklustre in the medium-term, entailing lower-than forecast offtake + pressure on
pricing & year-end incentives. [6] Downtrend in seaborne thermal coal prices continues, thereby reducing the headroom to revise notified coal prices and put further pressure on e-auction realizations.

30

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SECTORS
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Japan/Asia ex-Japan: Sector ratings are not assigned.

31

Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
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average recommendation of the stocks under coverage is) a negative absolute recommendation.

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other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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