Coal India Equity Research

Date of Research – 13 January 2016

Price – Rs. 316.90

About the Company

Founded in 1973, Coal India Ltd. (“Coal India” or the “Company”), is a Government of India (GOI) enterprise and the largest coal producer in the world based on raw coal production and coal reserves. CIL’s total coal resources and reserves amount to 64.2 billion tonnes and 18.9 billion tonnes respectively. The Company currently operates 471 mines in 21 major coalfields across 8 states in India, of which 163 are open cast mines, 273 are underground mines and 35 are mixed mines. The Company carries out its coal production through eight subsidiaries – Eastern Coalfields Ltd. (ECL), Bharat Coking Coal Ltd. (BCCL), Central Coalfields Ltd. (CCL), Northern Coalfields Ltd. (NCL), Western Coalfields Ltd. (WCL), South Eastern Coalfields Ltd. (SECL), Mahanadi Coalfields Ltd. (MCL), and North Eastern Coalfields (NEC).

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations68,302.7468,810.0274,120.0778,010.12 83,808.13 
Expenses50,219.1152,846.8656,784.6759,703.84  71,568.22  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)18,083.6315,963.1617,335.4018,306.28  12,239.91  
Depreciation1,812.971,996.412,319.802,466.44  2,910.07  
Finance Costs45.1758.007.3220.65  411.73  
Other income8,746.698,969.386,570.645,728.45  5,515.60  
Exceptional items6.86(1.41)(5.00)(41.45) – 
PBT24,965.3222,879.5421,583.9221,589.09  14,433.71  
Tax7,622.677,767.907,857.307,314.79  5,165.96  
Extraordinary items0.010.010.010.01  0.01  
PAT (before Minority Interest and share of Associates)17,342.6415,111.6313,726.6114,274.29  9,267.74
Profit/ (loss) attributable to Minority Interest(0.04)(0.09)(0.04) – 
Share of profit / (loss) of Associates– 1.76  
Consolidated Profit / (Loss) for the year17,342.6415,111.6713,726.7014,274.33  9,265.98  

Profitability Analysis

Consolidated(%)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio26.4823.2023.3923.47  14.60
Net Profit Margin Ratio25.3921.9618.5218.30  11.06 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital6,316.366,316.366,316.366,316.366,316.36
Reserves & Surplus34,136.6642,155.6336,088.1034,036.7127,581.24
Net worth (shareholders funds)40,453.0248,471.9942,404.4640,353.0733,897.60
Minority Interest53.6063.6063.6065.83104.81
Long term borrowings1,333.281,077.79171.46201.83263.06
Current liabilities34,188.4037,669.8224,434.8828,422.6431,453.71
Other long term liabilities and provisions30,918.3134,281.5637,167.9541,498.0944,500.49
Total Liabilities1,06,946.611,21,564.761,04,242.351,10,541.461,10,219.67

 

Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets16,343.6716,961.7119,100.2021,274.4124,254.93
Noncurrent Investments946.991,400.301,187.58963.05961.98
Current assets87,375.3599,692.2080,226.5583,703.1472,504.91
Long term advances and other noncurrent assets1,086.541,255.531,756.282,641.2410,453.31
Deferred Tax Assets1,194.062,255.021,971.741,959.622,044.54
Total assets1,06,946.611,21,564.761,04,242.351,10,541.461,10,219.67

Efficiency Analysis

 (%)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROCE37.4536.4537.4442.6853.42
ROE / RONW36.5635.7835.6434.0242.11

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)68,302.7468,810.0274,120.0778,010.12 83,808.13 
Growth (%)9.43 %0.74 %7.72 %5.25 % 7.43 % 
PAT (Rs. Cr.)17,342.6415,111.6313,726.6183,808.139,267.74  
Growth (%)17.27 %(12.86 %)(9.17 %)3.99 % (35.07 %) 
Earnings Per Share – Basic (Rs. )27.6323.9221.7322.60 14.78
Earning Per Share – Diluted (Rs. )27.6323.9221.7322.60 14.78
Price to Earnings11.1915.6117.6312.92 17.12 

Dividend History

Coal India’s share got listed in the Stock Exchanges on 4th November, 2010. The CIL stock opened at Rs 291 and ended the first day at Rs 342.35 per share making CIL the fourth most valued company in the country with a market capitalization of Rs. 2.16 lakh crores. On 18th Feb, 2011, the Company announced its first interim dividend at the rate of 35%.

The Company has maintained an average dividend yield of 5.01 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Coal India’s average current ratio over the last 5 financial years has been 2.80 times which indicates that that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Coal India’s average long term debt to equity ratio over the last 5 financial years has been 0.02 times which indicates that the Company operates with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Coal India’s average interest coverage ratio over the last 5 financial years has been 710.30 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Coal India reported a promoter holding of 78.86 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 17.48 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.