Vous êtes sur la page 1sur 19

Equity Research

Basic Industries | Asia ex-Japan Metals & Mining 3 July 2013 Stock Rating Industry View Price Target

Coal India

Connecting the dots: nationalization, wages and pension


We take a deep dive into Coal Indias (CILs) productivity trends in this report, along with employee costs and retirement obligations. Investors are seeking clarity, we believe, on: 1) sustainability of productivity increase achieved over the past decade; 2) wage inflation trend going forward; and 3) unfunded liabilities with respect to employee retirements. We conclude the following:

OVERWEIGHT
Unchanged

NEUTRAL
Unchanged

INR 402.00
Unchanged

Price (02-Jul-2013) Potential Upside/Downside Tickers

INR 299.85 +34% COAL IN / COAL.NS 1893962 6316.36 10.00 0.2 3.4 N/A N/A

Our analysis of various factors driving CILs employee wages (refer Figure 4)
suggests wage costs would rise by a 7% CAGR over FY13-18E after building in benefits from natural attrition (retiring employees earn 2.5x of new employees), annual increments, inflation estimates and next National Coal Wage Agreement (NCWA-X) due in July 2016. Incrementally, we see contractor wages increasing in line with the employee wage trend since, following the recent wage hike for contractors, the spread with CILs employee wages has narrowed considerably.

Market Cap (INR mn) Shares Outstanding (mn) Free Float (%) 52 Wk Avg Daily Volume (mn) Dividend Yield (%) Return on Equity TTM (%) Current BVPS (INR)
Source: FactSet Fundamentals

We expect the rate of natural attrition to accelerate (to 3.5% over FY13-18E refer
Figure 7). Based on an analysis of Coal Indias employee profile by subsidiary, we believe legacy subsidiaries will account for the bulk of retirements which should result in an almost doubling of their productivity, while incremental volumes will shift towards efficient subsidiaries. We forecast the productivity improvement trend to accelerate to 8% over FY13-18E.
Price Performance 52 Week range Exchange-BSE INR 386.00-285.15

With a current pensioner base as big as the employee base, we take a closer look at
CILs pension obligations. The deficit in the Coal Mines Pension Scheme (managed independently) is large at Rs180bn (as of Mar 2012). Since the company pension plan is a defined contribution scheme, CIL cannot be forced to fund any shortfalls. However, considering the magnitude of the shortfall in the pension fund, this is a risk worth highlighting, in our view. Unfunded gratuity liabilities in CIL stand at Rs66.7bn (as of Mar 2012), which we expect would be funded by CIL progressively over FY14-16E. COAL.NS: Financial and Valuation Metrics INR
FY Mar EPS Previous EPS P/E
Source: Barclays Research.

Link to Barclays Live for interactive charting

Asia ex-Japan Metals & Mining Chirag Shah +91 22 6719 6081 chirag.x.shah@barclays.com BSIPL, Mumbai Ankur Niyogi +91 22 6719 6267 ankur.niyogi@barclays.com BSIPL, Mumbai

2011 17.21A 17.21A 17.4

2012 23.44A 23.44A 12.8

2013 27.80E 27.80E 10.8

2014 26.36E 26.36E 11.4

2015 27.91E 27.91E 10.7

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 13.

Barclays | Coal India


Asia ex-Japan Metals & Mining Industry View: NEUTRAL Stock Rating: OVERWEIGHT 2013E 683,027 182,836 252,174 251,605 175,425 27.80 27.77 6,316 14.00 2014E 731,489 175,914 249,297 248,526 166,513 26.36 26.36 6,316 15.00 2015E 756,308 178,652 252,606 251,854 176,298 27.91 27.91 6,316 15.00 CAGR 6.6% 4.5% 6.0% 5.8% 6.0% 6.0% 6.0% 0.0% 14.5% Average 24.9 34.6 34.5 23.9 13.5 36.0 50.9 CAGR 7.7% 79.8% 12.4% 10.2% 8.7% N/A 7.8% N/A 13.9% N/A 10.1% N/A 5.8% Average 11.4 7.0 10.3 3.8 4.5 -55.8 CAGR 5.2% N/A -0.7% 2.9% 0.4% 2.3% Price (02-Jul-2013) INR 299.85 Price Target INR 402.00 Why Overweight? We assume a WACC of 13.0% and a terminal growth rate of 2%, conservative, we believe, considering that CIL has more than c43 years of mine life and there is limited downside to realisations. Upside case INR 467.00 Our upside case assumes that non-power volumes are brought at par with seaborne thermal coal prices (Rs52/share). A drop in diesel prices for bulk consumers by 15% would add Rs13/share to our base case. Downside case INR 290.00 We assume 10% drop in seaborne prices (Rs37/share), flat volumes over FY13 (Rs23), further 15% hike in diesel costs (Rs13) and immediate implementation of the mining tax (Rs39) downside to our base case PT. An aggressive pricing for sale of governments stake is a key risk. Upside/Downside scenarios

Coal India Limited (COAL.NS)


Income statement (INRmn) Revenue EBITDA EBIT Pre-tax income Net income EPS (reported) (INR) EPS (adj) (INR) Diluted shares (mn) DPS (INR) Margin and return data EBITDA margin (%) EBIT margin (%) Pre-tax margin (%) Net margin (%) ROIC (%) ROE (%) Payout ratio (%) 2012A 624,154 156,678 212,355 212,727 147,882 23.44 23.41 6,316 10.00

25.1 34.0 34.1 23.7 17.9 40.0 42.7

26.8 36.9 36.8 25.7 14.9 39.8 50.4

24.0 34.1 34.0 22.8 10.3 33.0 56.9

23.6 33.4 33.3 23.3 10.8 31.2 53.7

Balance sheet and cash flow (INRmn) Tangible fixed assets 144,952 136,823 149,615 180,996 Intangible fixed assets 18,484 58,484 93,484 107,484 Cash and equivalents 592,372 627,352 755,950 840,336 Total assets 1,056,833 1,149,917 1,291,279 1,415,108 Short and long-term debt 13,333 18,012 17,847 17,119 Other long-term liabilities -11,941 -11,941 -11,941 -11,941 Total liabilities 652,459 673,581 759,283 817,665 Net debt/(funds) -579,039 -609,339 -738,104 -823,217 Shareholders' equity 405,066 477,029 532,690 598,136 Change in working capital -79,912 9,793 -120,896 -65,048 Cash flow from operations 198,879 163,489 308,845 265,213 Capital expenditure -34,094 -50,000 -70,000 -70,000 Free cash flow 164,784 113,489 238,845 195,213 Valuation and leverage metrics P/E (reported) (x) EV/EBITDA (x) Equity FCF yield (%) P/BV (x) Dividend yield (%) Net debt/capital (%)

12.8 8.4 11.3 4.7 3.3 -54.8

10.8 7.0 7.1 4.0 4.7 -53.0

11.4 6.6 12.7 3.6 5.0 -57.2

10.7 6.0 10.3 3.2 5.0 -58.2

POINT Quantitative Equity Scores


Value

Quality

Selected operating metrics (INR) Volumes (mt) (k) 432.6 Power FSA price (Rs/t) 0.0 E-auction price (Rs/t) 2,599.3 Blended price (Rs/t) 1,372.9 Employee cost (Rs/t) 579.4 Total operating cost (Rs/t) 1,072.6

454.2 1,239.0 2,564.6 1,457.8 601.5 1,101.3

483.6 1,294.8 2,553.1 1,511.8 599.3 1,148.8

503.7 1,294.8 2,544.7 1,493.8 587.0 1,146.8

Sentiment

Low

High

Source: POINT. The scores are valid as of the date of this report and are independent of the fundamental analysts' views. To view the latest scores, click here.

Source: Company data, Barclays Research Note: FY End Mar

3 July 2013

Barclays | Coal India

Key charts
FIGURE 1 Coal Indias past and future productivity and cost trends
900 800 700 600 500 400 300 200 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E FY18E Productivity(RHS)
NCWA-VII

Rs/t
NCWA-VIII

NCWA-IX

NCWA-X (expected)

tons/shift 8 7 6 5 4 3 2

Employee + Contract costs per ton


Source: Company data, Ministry of Coal, Planning Commission, Barclays Research estimates

FIGURE 2 Coal India hiked wages of contractors in Jan 2013, narrowing the wage gap with regular employees
700 600 500 400 300 200 100 NCWA-IX Pre-revised contract wages Revised contract wages (Jan'13) Statutory minimum wage 180 115 Rs/day 604 464

FIGURE 3 On a per-ton basis, we expect a c3.5% CAGR in total employee costs (including contractors) over FY13-18E
1,000 800 600 400 200 Rs/t

Employee Cost/t Employee + contract cost / t

Contract cost/t

Source: Company data, Barclays Research

Source: Company data, Barclays Research estimates

FIGURE 4 Past and future estimated break-up of employee costs


Rs mn 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 FY07 FY08 FY09 FY10 Basic + DA
Source: Company data, Barclays Research estimates

NCWA-X (expected) NCWA-IX NCWA-VIII

FY11 PF

FY12 Gratuity

FY13E

FY14E

FY15E

FY16E

FY17E

FY18E

Ex-gratia, PPLB

Others

3 July 2013

Barclays | Coal India

Employee productivity Coal India shedding a legacy


Coal India inherited around 700,000 employees during nationalization of the coal industry in the early 1970s. The employee strength has halved today, but a large number of legacy employees are still deployed at the older subsidiaries. As of FY12, an overwhelming two-thirds of the employee strength was employed at the four legacy subsidiaries (ECL, BCCL, WCL and CCL), but contributed less than one-third of the annual production. With nationalization approaching 40 years of completion, natural attrition of employees is likely to accelerate, the bulk being from the older subsidiaries. We foresee significant productivity jumps at these subsidiaries over the next few years. Combined with an increased focus on mechanization and outsourcing, we believe the productivity level in Coal India is poised to witness a CAGR of 7.8% over FY13-18E.

We expect employee reduction to continue over the coming years


Age-profile analysis of Coal Indias current employee base (by subsidiary) suggests that one-fifth of the current employee base will be retiring in the next five years. More importantly, the legacy subsidiaries (those formed during or soon after nationalization) will account for the bulk of the retirements. We expect a positive impact to the productivity levels at these subsidiaries and at Coal India as a result. FIGURE 5 Age profile analysis indicates c80,000 retirements (one-fifth the current employee base) in the next five years (FY13-18E)
56 - 60 yrs 20% <35 yrs 10% 36-40 yrs 12%

FIGURE 6 Legacy subsidiaries to witness 90% of these retirements


Employees (no)

18,000 16,000 14,000 12,000 10,000

8,000

51 - 55 yrs 21%

41-45 yrs 17%

6,000 4,000 2,000 FY14E FY15E FY16E MCL FY17E Others FY18E

46-50 yrs 20%


Source: Company data, Barclays Research estimates

Legacy subsidiaries*

*Includes BCCL, ECL, CCL, WCL and SECL. Source: Company data, Barclays Research estimates

FIGURE 7 Coal India will continue to shed employees at more than a 3% CAGR over the next few years
550,000 500,000 450,000 400,000 350,000 300,000 250,000 200,000 3.5% CAGR 3.1% CAGR

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

FY16E

FY17E

No of employees
Source: Company data, Barclays Research estimates

3 July 2013

FY18E

Barclays | Coal India

Significant variation in productivity levels across subsidiaries


Combined manpower productivity levels of regular and contract employees (measured in tonnes of output per man shift, or OMS) vary considerably across Coal Indias subsidiaries. The main factors for this variation, in our view are: 1) difference in expected volume growth among subsidiaries, which in turn depends on a host of factors such as statutory clearances, logistics availability, etc; 2) a significant number of regular employees being deployed at legacy mines of the older subsidiaries where production remains low; 3) the newer subsidiaries having a much lighter employee-base; and 4) differences in outsourcing levels (whose operations are more efficient) being adopted by various subsidiaries. For example, average tons of coal produced per man shift at MCL (Mahanadi Coalfields Limited) over the past six years has been 12x that of ECL (Eastern Coalfields Limited). FIGURE 8 The most productive subsidiary has been 12x more efficient than the least productive
18 16 14 12 10 8 6 4 2 0 FY07 FY08 FY09 OMS of MCL
Source: Company data, Barclays Research

tons

FY10 OMS of ECL

FY11

FY12

FIGURE 9 Operating parameters across subsidiaries


ECL Total No. of employees* Cost/ employee Productivity/employee (OMS) % of employees Workmen* Workmen as a % of total emplyees % output from underground mines Overburden removal (mn cu meters) Total production Strip ratio
* As of Mar 2012. Source: Company data, Barclays Research

BCCL 64,573 281,167 1.6 17.3% 57,337 89% 12.7% 83.3 29.0 2.9

CCL 50,307 270,322 2.8 13.5% 44,230 88% 2.7% 62.5 47.5 1.3

NCL 16,353 362,490 12.5 4.4% 12,920 79% 0.0% 182.2 66.3 2.8

WCL 57,312 285,834 2.8 15.3% 49,442 86% 19.9% 115.8 43.7 2.7

SECL 76,406 273,749 5.3 20.5% 65,376 86% 14.9% 138.4 95.9 1.4

MCL 22,013 299,482 15.5 5.9% 17,508 80% 2.2% 88.7 110.3 0.8

CIL 373,614 282,719 3.9

78,506 269,597 1.2 21.0% 69,788 89% 23.9% 56.3 30.8 1.8

321,180 9.3% 732 431 1.7

Expect productivity levels to double at legacy subsidiaries


With the bulk of the retirements coming at the legacy subsidiaries, we expect sharp jumps in their productivity levels. A significant number of these employees were deployed at legacy mines that contribute little to production and hence they could be categorized as surplus or bench employees. Retirement of employees from these mines is likely to lead to

3 July 2013

Barclays | Coal India much leaner operations at the legacy subsidiaries and positively impact overall productivity levels at Coal India, in our view. On average, we expect productivity levels to double at the legacy subsidiaries over FY1318E. Central Coalfields Limited (CCL) is likely to benefit the most; we also expect volume growth to shift towards efficient subsidiaries, such as MCL and CCL, and there to be a further increase in outsourcing levels. Overall, we expect Coal Indias productivity levels to witness a 7.8% CAGR over FY13-18E (compared to 6.7% over FY07-12). FIGURE 10 CCL likely the biggest beneficiary, with productivity levels catching up with MCL
tons / man-shift 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 FY07 FY08 FY09 FY10 FY11 MCL FY12 FY13 CCL FY14E FY15E FY16E FY17E FY18E Coal India

Source: Company data, Ministry of Coal, Planning Commission, Barclays Research estimates

FIGURE 11 Retirements from various subsidiaries will be close to 80,000 in the next five years
Company Exe ECL BCCL CCL WCL SECL MCL NCL NEC CMPDI DCC CIL(HQ) TOTAL 847 150 153 178 76 98 74 79 4 34 1 FY14E Non-exe 3373 2825 1985 2327 2450 706 464 121 130 32 50 14463 Exe 168 188 138 85 80 81 73 4 41 2 0 860 FY15E Non-exe 3255 2795 1988 2573 2631 793 530 118 130 35 42 14890 862 Exe 157 150 156 80 98 89 75 5 49 3 FY16E Non-exe 2792 2572 1648 2846 3127 787 612 111 161 52 33 14741 906 Exe 173 121 167 100 111 68 110 5 47 4 FY17E Non-exe 2636 2853 1749 2912 3188 836 727 137 136 39 33 15246 886 Exe 153 156 139 102 116 72 100 5 39 4 FY18E Non-exe 2527 2665 1634 2946 3389 855 718 176 157 50 41 15158

*Abbreviations: Eastern Coalfields Limited (ECL), Bharat Coking Coal Limited (BCCL), Central Coalfields Limited (CCL), Western Coalfields Limited (WCL), South Eastern Coalfields Limited (SECL), Mahanadi Coalfields Limited (MCL), Northern Coalfields Limited (NCL), North Eastern Coalfields (NEC), Central Mine Planning and Design Institute Limited (CMPDIL), Dankuni Coal Complex (DCC) and Coal India Limited - Head Quarters (CIL - HQ) Source: Company data, Barclays Research estimates

3 July 2013

Barclays | Coal India

Dissecting future employee cost trends


We forecast a c7% CAGR in employee costs over FY13-18. Our estimates include the impact of a wage hike from the 10th National Coal Wage Agreements (NCWA-X) (expected in July 2016). On average, retiring employees earn up to 2.5x the salary of new employees. We build in the difference in employee salary mix, regular annual increments of 3% (NCWAIX) and expected wage hikes due to inflation (dearness allowance). We also look at the funding status of the gratuity fund.

Non-executive wage structure and key factors


The non-executive employee class forms the core of Coal Indias employee base and contributes 88% to total employee cost. The break-up of non-executive salary and associated key factors driving them are provided in Figure 12. FIGURE 12 Break-up of a Coal Indias non-executive employee salaries
Salary component Basic wage Attendance bonus Special & house rent allowance Dearness allowance Key factors

Finalized in NCWA agreements for different grades of employees Annual increments in basic wage is fixed at 3% pa (NCWA-IX) Paid quarterly as 10% of basic wage Special allowance fixed at 4% of revised basic wage HRA at 2% of basic to employees not provided with accommodation Linked to All India Consumer Price Index for Industrial workers Base for calculation fixed at index value of 4245 (NCWA-IX) Percentage increase over base value paid quarterly as % of basic Varies with the level of outsourcing adopted by the firm Contract wages increased from Rs180 to Rs464 (/day) in Jan 2013 Defined benefit plan; cap of Rs1mn - paid at the time of retirement Assets against obligations invested with LIC India Funded status as per actuarial valuation is around c47% (Mar12) Coal India and employees contribute fixed % of salary Operated by Coal Mines Provident Fund (CMPF) under Coal Ministry Multi-employer defined contribution plan - CIL, central government and employee contribute fixed %; also administered by CMPF Retirees receive 25% of last 10 months average pay

Contractual expenses Gratuity

Provident Fund Pension Scheme

Source: Company data, Barclays Research

A brief history of wage agreements in Indian coal industry


Wages for the non-executive workforce of the Indian coal industry are negotiated and settled for tenure of five years between the managements of the coal companies (Coal India, its various subsidiaries and the Singareni Collieries Company Limited) and the five central trade unions through a joint bipartite committee. The detailed agreement across all grades of non-executive employees is laid down in the National Coal Wage Agreement (NCWA). There have been nine National Coal Wage Agreements to date. The most recent NCWA agreement (NCWA-IX) was signed in a record time of seven months, and led to an average hike of 25% for the non-executive class.

3 July 2013

Barclays | Coal India FIGURE 13 Historical perspective of NCWA agreements and agreement dates
NCWA I II III IV V VI VII VIII IX Start date Jan-75 Jan-79 Jan-83 Jan-87 Jan-91 Jul-96 Jul-01 Jul-06 Jul-11 End date Dec-78 Dec-82 Dec-86 Jun-91 Jun-96 Jun-01 Jun-06 Jun-11 Jun-16 Agreement Date Nov-74 Nov-79 Nov-83 Jul-89 Jan-96 Dec-00 Jul-05 Jan-09 Jan-12

Source: Company data, Barclays Research

FIGURE 14 NCWA-IX resulted in a hike of 25% in non-executive wages


NCWA periods V-1991 V-1996 VI-1996 VI-2001 VI-2001 VII-2006 VIII-2006 VIII-2011 IX-2011 Basic Wage (Rs/day) 65.40 65.40 126.90 126.90 213.50 213.50 321.50 321.50 604.33 Attendance bonus Special DA (Rs/day) @10% (Rs/day) 6.54 6.54 12.69 12.69 21.35 21.35 32.15 32.15 60.43 1.20 1.20 2.30 2.30 3.80 3.80 5.80 5.80 10.85 Variable DA (Rs/day) 0.00 52.90 0.00 51.20 0.00 51.20 0.00 205.00 0.00 Total (Rs/day) 73.14 126.04 141.89 193.09 238.65 289.85 359.45 564.45 675.61 25.0% 24.0% 24.0% 13.0% Wage hikes (%)

Source: Company data, Barclays Research

Basic wages
The basic wage is the biggest component of the employee salary structure. The key points related to this component, in our view, are:

NCWA fixes the minimum basic wage as well as the basic wages across different
categories, skills and grades of employees.

A number of other components of salary are calculated on the basic wage such as
provident fund contributions, leave encashment, dearness allowance.

NCWA-IX fixed the basic wage of the lowest grade employee at Rs604/day. NCWA-IX fixed the annual increment of basic wage at 3% in each employee grade.

Dearness allowance
The (variable) dearness allowance component is linked to the All India Consumer Price Index for Industrial Workers (base 1960=100). The percentage increase in the series is computed quarterly on the basis of average quarterly AICPI index value over the base index value of 4245 as fixed in NCWA-IX. This increase is paid out as percentage of basic pay on a quarterly basis. The dearness allowance component depends on the macroeconomic conditions of the economy with larger dearness allowance to employees during inflationary conditions. The index has shown a quarterly average increase of c2% or an annualized increase of c9% pa since 2005.
3 July 2013 8

Barclays | Coal India FIGURE 15 Increases in All India Consumer Price Index for Industrial Workers over base value is paid as Dearness Allowance
Period Sep-11 Dec-12 Mar-12 Jun-12 Sep-12 Dec-12 AICPI index 4245 4276 4443 4520 4550 4710 Rates of VDA (% increase over base =4245 as fixed in NCWA-IX) 0.0% 0.7% 4.7% 6.5% 7.2% 11.0%

FIGURE 16 Percentage changes in All India Consumer Price Index for Industrial Workers (base 1969 = 100)
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Jun-12

Source: Labour Bureau, Company data, Barclays Research

Source: Labour Bureau, Barclays Research

Gratuity
The total outstanding actuarial liability on account of gratuity stood at Rs126bn on Mar12. Assets for gratuity funds are maintained with Life Insurance Corporation (LIC). The funding status of the fund as of Mar 2012 stands at 47%. The average gratuity outgoing (at NCWAIX wage rates) is shown in Figure 17. Gratuity plan is a defined benefit plan with a cap of Rs1mn to be paid to employees on retirement. The risk of funding shortfall lies with Coal India. The major part of the unfunded portion is due from BCCL and ECL. The company expects these two subsidiaries to infuse the required funds in the future. BCCL was recently declared No longer sick by the Board for Industrial and Financial Reconstruction (BIFR) and management expects ECL to follow suit. We expect Coal India (through its subsidiaries) to fund the shortfall in the coming years. FIGURE 17 Average gratuity obligations (per employee) in non-executive grades on NCWA-IX pay (as of FY13)
1,200 1,000 800 600 400 200 Daily rated Excavation Monthly rated Average Gratuity
Source: Company data, Barclays Research estimates

Rs '000

Clerical grade

Piece-rated

Forecast a c7% CAGR in employee costs over FY13-18


Employee costs in FY07-12 witnessed the impact of two NCWAs (NCWA-VIII and IX). Going forward, we forecast a c7% CAGR in employee costs over FY13-18. The main factors driving this, in our view, are: 1) regular annual increments of 3% pa; 2) wage hikes due to inflation (dearness allowance) over and above regular increments; 3) impact of NCWA-X wage hike in FY17E; and 4) a shift in the employee profile mix due to increased retirements.
3 July 2013 9

Dec-12

Barclays | Coal India FIGURE 18 Past and future estimated break-up of employee costs
Rs mn 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 FY07 FY08 FY09 FY10 Basic + DA
Source: Company data, Barclays Research estimates

NCWA-X (expected) NCWA-IX NCWA-VIII

FY11 PF

FY12 Gratuity

FY13E

FY14E

FY15E

FY16E

FY17E

FY18E

Ex-gratia, PPLB

Others

Contract mining the way forward


Outsourcing development and operations of mines to private miners is steadily gaining importance in Coal Indias business model (refer Figures 19 to 24). We view this as a positive trend given efficient utilization of employees (productivity of contract employees could be as high as 5x Coal India employees) and higher mechanization levels in mining operations by contractors. We had highlighted the stark wage difference between regular and contract employees as a potential risk until Jan 2013, the minimum basic wage of a contract employee was less than one-third of a regular employee. However, we believe that now the risk has mitigated significantly on account of the following:

Increase in wages of contract workers from Rs180/day to Rs464/day effective from Jan
2013.

Coal India has been proactively pushing contract firms to shift from cash disbursement
to bank account disbursement of salary of contract workers.

Even after wage revision, there remains a gap between the wages. We believe the risk of
a friction on account of this is low as the nature of work assigned to contract and permanent employees is different. We expect a greater thrust to the outsourcing model, given cost and productivity advantages, and estimate that production share from outsourcing could rise by 7% over FY17E.

3 July 2013

10

Barclays | Coal India

FIGURE 19 FY13 employee cost and contract expense mix


Contracting costs 18%

FIGURE 20 FY18E mix we expect greater focus on contract mining


Contracting costs 21%

Employee costs 82%


Source: Company data, Barclays Research Source: Company data, Barclays Research

Employee costs 79%

FIGURE 21 FY12 volume mix from subsidiaries


ECL 7%

FIGURE 22 FY18E volume mix incremental volumes to shift towards efficient subsidiaries
BCCL 7% CCL 10%

MCL 24%

MCL 25%

ECL 7%

BCCL 7%

CCL 15%

NCL 15% SECL 27% WCL 10%

SECL 23%

NCL 15% WCL 8%

Source: Company data, Barclays Research

Source: Company data, Barclays Research

FIGURE 23 Coal India hiked wages of contractors narrowing the wage gap with regular employees
700 600 500 400 300 200 100 NCWA-IX Pre-revised contract wages Revised contract wages (Jan'13) Statutory minimum wage 180 115 464 Rs/day 604

FIGURE 24 On a per-ton basis, we expect c3.5% CAGR in total employee costs (including contractors) over FY13-18E
1,000 900 800 700 600 500 400 300 200 100 Rs/t

Employee Cost/t Employee + contract cost / t


Source: Company data, Barclays Research

Contract cost/t

Source: Company data, Barclays Research

3 July 2013

11

Barclays | Coal India

Coal Mines Pension Scheme can the deficit flow to CIL?


With a pensioner base roughly equal to current employee strength and sustained attrition over the coming years, we take a closer look at Coal Indias social security obligations. Pension obligations for Coal India through its defined contribution scheme should be ideally limited to a specific percentage of employee cost. However, we foresee uncertainties in funding plans, given a reported deficit of Rs180bn for the scheme and a fund life of 10 years as of Mar 2012. The Coal Mines Pension Scheme (1998) for coal employees is a multiple-employer defined contribution scheme with specific contributions from different stakeholders. The scheme is administered by the Coal Mines Provident Fund Organization (CMPFO), which is an independent government body under the Ministry of Coal and specifies contributions of c3.16% by employee, 1.16% by Coal India and 1.7% by the central government (subject to a specific limit). On the other hand, the scheme also promises 25% of the past ten months average salary to retiring employees. We have received a number of investor queries about the pension scheme, obligations of stakeholders and funding plans in case of deficits. With c300,000 pensioners (or more than 80% of the current active workforce) and c80,000 retirements in the next five years, the pension obligations towards retired/retiring employees are expected to increase. We believe Coal Indias obligation to the pension scheme (being a defined contribution plan) should ideally remain restricted to a specified percentage of total employee emoluments. However, an actuarial valuation exercise conducted last year reports a deficit of cRs180bn (as of Mar 2012) in the Coal Mines Pension scheme and concludes that at the current state, the balance in the fund is likely to be extinguished in the next 10 years. It has also suggested alternatives regarding pension amounts of retired/retiring employees and ways to fund the pension deficit. Following this report, there has been an ongoing deliberation between Coal India and the Joint Bipartite Committee regarding the pension deficit and funding alternatives. The pension scheme allows for increasing the employees contribution and this can be one of the alternatives, as per the management. However, we earmark such a scenario as a risk as it potentially implies newer employees subsidizing pension contributions of older employees. We also remain sceptical that given the scale of the deficit, Coal India might be asked to fund a part of the deficit in the future. FIGURE 25 Timelines in determining deficit of Coal Mines Pension Scheme (1998)
Timelines Mar-98 Mar-01 Jul-03 Jun-06 May-07 May-11 Jun-11 Jul-12 Feb-13 Event Coal Mines Family Pension Scheme (1971) merged with Coal Mines Pension Scheme Actuary valuation of Coal Mines Pension Scheme (1998) taken up Central Government asks CMPFO for re-evaluation of submitted report Revised report indicated deficit of Rs19bn and recommended enhanced contribution by employees CMPFO said Jun-06 report based on 40% data; suggests revised study on 100% data Total number of CIL pensioners reported at 285,126 Coal Ministry appoints fresh Actuary for valuation of pension fund Draft report submitted by actuary points to deficit of Rs180bn CIL informed CMPFO that matter is under consideration with Joint Bipartite Committee for the Coal Industry (JBCCI)

Source: Parliament of India Archives, Company data, Barclays Research

3 July 2013

12

Barclays | Coal India

ANALYST(S) CERTIFICATION(S)
I, Chirag Shah, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. The POINT Quantitative Equity Scores (POINT Scores) referenced herein are produced by the firms POINT quantitative model and Barclays hereby certifies that (1) the views expressed in this research report accurately reflect the firm's POINT Scores model and (2) no part of the firm's compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED


Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072. The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account. Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting payment or reimbursement by any covered company of their travel expenses for such visits. In order to access Barclays Statement regarding Research Dissemination Policies https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. and Procedures, please refer to

The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. Primary Stocks (Ticker, Date, Price) Coal India (COAL.NS, 02-Jul-2013, INR 299.85), Overweight/Neutral, C/J

Disclosure Legend: A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in the previous 12 months. B: An employee of Barclays Bank PLC and/or an affiliate is a director of this issuer. C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by this issuer or one of its affiliates. D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from this issuer in the past 12 months. E: Barclays Bank PLC and/or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer within the next 3 months. F: Barclays Bank PLC and/or an affiliate beneficially owned 1% or more of a class of equity securities of the issuer as of the end of the month prior to the research report's issuance. G: One of the analysts on the coverage team (or a member of his or her household) owns shares of the common stock of this issuer. H: This issuer beneficially owns 5% or more of any class of common equity securities of Barclays Bank PLC. I: Barclays Bank PLC and/or an affiliate has a significant financial interest in the securities of this issuer. J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of this issuer. K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from this issuer within the past 12 months. L: This issuer is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate. M: This issuer is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate. N: This issuer is, or during the past 12 months has been, a non-investment banking client (non-securities related services) of Barclays Bank PLC and/or an affiliate. O: Barclays Capital Inc., through Barclays Market Makers, is a Designated Market Maker in this issuer's stock, which is listed on the New York Stock Exchange. At any given time, its associated Designated Market Maker may have "long" or "short" inventory position in the stock; and its 3 July 2013 13

Barclays | Coal India

IMPORTANT DISCLOSURES CONTINUED


associated Designated Market Maker may be on the opposite side of orders executed on the floor of the New York Stock Exchange in the stock. P: A partner, director or officer of Barclays Capital Canada Inc. has, during the preceding 12 months, provided services to the subject company for remuneration, other than normal course investment advisory or trade execution services. Q: The Corporate and Investment Banking division of Barclays Bank PLC, is a Corporate Broker to this issuer. R: Barclays Capital Canada Inc. and/or an affiliate has received compensation for investment banking services from this issuer in the past 12 months. S: Barclays Capital Canada Inc. is a market-maker in an equity or equity related security issued by this issuer. Guide to the Barclays Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage universe"). In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12month investment horizon. Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company. Industry View Positive - industry coverage universe fundamentals/valuations are improving. Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. Negative - industry coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "industry coverage universe": Asia ex-Japan Metals & Mining Adaro Energy Tbk PT. (ADRO.JK) Anhui Conch Cement Co., Ltd. (0914.HK) Bumi Resources Tbk PT. (BUMI.JK) China National Building Material Co., Ltd. (3323.HK) China Shenhua Energy Co., Ltd. (1088.HK) CST Mining Group Ltd. (0985.HK) Hindalco Industries Ltd. (HALC.NS) Indo Tambangraya Megah Tbk PT. (ITMG.JK) Jindal Steel & Power (JNSP.NS) Maanshan Iron & Steel Co., Ltd. (0323.HK) NMDC Ltd. (NMDC.NS) Steel Authority of India (SAIL.NS) UC Rusal (0486.HK) Distribution of Ratings: Barclays Equity Research has 2373 companies under coverage. 44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 52% of 3 July 2013 14 Aluminum Corporation of China Ltd. (2600.HK) Angang Steel Co., Ltd. (0347.HK) Banpu PCL (BANP.BK) China Coal Energy Co., Ltd. (1898.HK) China Resources Cement Holdings Ltd. (1313.HK) China Steel Corp. (2002.TW) Fortescue Metals Group Ltd. (FMG.AX) Hindustan Zinc Ltd. (HZNC.NS) IRC Ltd. (1029.HK) JSW Steel (JSTL.NS) MMG Limited. (1208.HK) POSCO (005490.KS) Tata Steel (TISC.NS) Yanzhou Coal Mining Co., Ltd. (1171.HK) BHP Billiton Ltd. (BHP.AX) China Hongqiao Group Ltd. (1378.HK) China Shanshui Cement Group Ltd. (0691.HK) Coal India (COAL.NS) Harum Energy Tbk PT. (HRUM.JK) Hyundai Steel Co. (004020.KS) Jiangxi Copper Co., Ltd. (0358.HK) Korea Zinc Co., Ltd. (010130.KS) National Aluminium Co., Ltd. (NALU.NS) Sesa Goa (SESA.NS) TB Bukit Asam Tbk PT. (PTBA.JK)

Barclays | Coal India

IMPORTANT DISCLOSURES CONTINUED


companies with this rating are investment banking clients of the Firm. 40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% of companies with this rating are investment banking clients of the Firm. 13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% of companies with this rating are investment banking clients of the Firm. Guide to the Barclays Research Price Target: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period. Guide to the POINT Quantitative Equity Scores: The POINT Quantitative Equity Scores (POINT Scores) are based on consensus historical data and are independent of the Barclays fundamental analysts views. Each score is composed of a number of standard industry metrics. A high/low Value score indicates attractive/unattractive valuation. Measures of value include P/E, EV/EBITDA and Free Cash Flow. A high/low Quality score indicates financial statement strength/weakness. Measures of quality include ROIC and corporate default probability. A high/low Sentiment score indicates bullish/bearish market sentiment. Measures of sentiment include price momentum and earnings revisions. These scores are valid as of the date of this report. To view the latest scores, which are updated monthly, click here. For a more detailed description of the underlying methodology for each score, please click here. Barclays offices involved in the production of equity research: London Barclays Bank PLC (Barclays, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Securities Japan Limited (BSJL, Tokyo) So Paulo Banco Barclays S.A. (BBSA, So Paulo) Hong Kong Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong) Toronto Barclays Capital Canada Inc. (BCCI, Toronto) Johannesburg Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg) Mexico City Barclays Bank Mexico, S.A. (BBMX, Mexico City) Taiwan Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan) Seoul Barclays Capital Securities Limited (BCSL, Seoul) Mumbai Barclays Securities (India) Private Limited (BSIPL, Mumbai) Singapore Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

3 July 2013

15

Barclays | Coal India

IMPORTANT DISCLOSURES CONTINUED

Coal India (COAL IN / COAL.NS)


INR 299.85 (02-Jul-2013) Rating and Price Target Chart - INR (as of 02-Jul-2013)

Stock Rating OVERWEIGHT Currency=INR Date 01-Jun-2013 Closing Price 324.95 332.80 Overweight Rating

Industry View NEUTRAL

Price Target 402.00 411.00

425

29-Mar-2012

400

375

350

325

300

275

Jan- 2011

Jul- 2011 Closing Price

Jan- 2012 Target Price

Jul- 2012

Jan- 2013

Jul- 2013

Rating Change

Link to Barclays Live for interactive charting


C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Coal India or one of its affiliates. J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Coal India. Valuation Methodology: Our 12-month price target of Rs402 for CIL is based on our discounted cash flow (DCF) analysis in which we use a WACC of 13% and a terminal growth rate of 2%. We view 2% as conservative, considering that CIL currently has about 43 years of mine life and there is limited downside to realisations. Risks which May Impede the Achievement of the Barclays Research Price Target: Our downside assumes 10% drop in seaborne prices (Rs37/share), flat volumes over FY13 (Rs23), further 15% hike in diesel costs (Rs13) and immediate implementation of the mining tax (Rs39). An aggressive pricing for sale of government's stake is a key risk in near term, though not quantifiable.

3 July 2013

16

DISCLAIMER: This publication has been prepared by the Corporate and Investment Banking division of Barclays Bank PLC and/or one or more of its affiliates (collectively and each individually, "Barclays"). It has been issued by one or more Barclays legal entities within its Corporate and Investment Banking division as provided below. It is provided to our clients for information purposes only, and Barclays makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized recipients of this report as its clients. Prices shown are indicative and Barclays is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Without limiting any of the foregoing and to the extent permitted by law, in no event shall Barclays, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any use of this publication or its contents. Other than disclosures relating to Barclays, the information contained in this publication has been obtained from sources that Barclays Research believes to be reliable, but Barclays does not represent or warrant that it is accurate or complete. Barclays is not responsible for, and makes no warranties whatsoever as to, the content of any third-party web site accessed via a hyperlink in this publication and such information is not incorporated by reference. The views in this publication are those of the author(s) and are subject to change, and Barclays has no obligation to update its opinions or the information in this publication. The analyst recommendations in this publication reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of Barclays and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. This communication is being made available in the UK and Europe primarily to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of the London Stock Exchange. The Corporate and Investment Banking division of Barclays undertakes U.S. securities business in the name of its wholly owned subsidiary Barclays Capital Inc., a FINRA and SIPC member. Barclays Capital Inc., a U.S. registered broker/dealer, is distributing this material in the United States and, in connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations permit otherwise. Barclays Bank PLC, Paris Branch (registered in France under Paris RCS number 381 066 281) is regulated by the Autorit des marchs financiers and the Autorit de contrle prudentiel. Registered office 34/36 Avenue de Friedland 75008 Paris. This material is distributed in Canada by Barclays Capital Canada Inc., a registered investment dealer and member of IIROC (www.iiroc.ca). Subject to the conditions of this publication as set out above, Absa Capital, the Investment Banking Division of Absa Bank Limited, an authorised financial services provider (Registration No.: 1986/004794/06. Registered Credit Provider Reg No NCRCP7), is distributing this material in South Africa. Absa Bank Limited is regulated by the South African Reserve Bank. This publication is not, nor is it intended to be, advice as defined and/or contemplated in the (South African) Financial Advisory and Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Absa Capital in South Africa, 15 Alice Lane, Sandton, Johannesburg, Gauteng 2196. Absa Capital is an affiliate of Barclays. In Japan, foreign exchange research reports are prepared and distributed by Barclays Bank PLC Tokyo Branch. Other research reports are distributed to institutional investors in Japan by Barclays Securities Japan Limited. Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with registered office of 6-10-1 Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143. Barclays Bank PLC, Hong Kong Branch is distributing this material in Hong Kong as an authorised institution regulated by the Hong Kong Monetary Authority. Registered Office: 41/F, Cheung Kong Center, 2 Queen's Road Central, Hong Kong. This material is issued in Taiwan by Barclays Capital Securities Taiwan Limited. This material on securities not traded in Taiwan is not to be construed as 'recommendation' in Taiwan. Barclays Capital Securities Taiwan Limited does not accept orders from clients to trade in such securities. This material may not be distributed to the public media or used by the public media without prior written consent of Barclays. This material is distributed in South Korea by Barclays Capital Securities Limited, Seoul Branch. All equity research material is distributed in India by Barclays Securities (India) Private Limited (SEBI Registration No: INB/INF 231292732 (NSE), INB/INF 011292738 (BSE), Registered Office: 208 | Ceejay House | Dr. Annie Besant Road | Shivsagar Estate | Worli | Mumbai - 400 018 | India, Phone: + 91 22 67196363). Other research reports are distributed in India by Barclays Bank PLC, India Branch. Barclays Bank PLC Frankfurt Branch distributes this material in Germany under the supervision of Bundesanstalt fr Finanzdienstleistungsaufsicht (BaFin). This material is distributed in Malaysia by Barclays Capital Markets Malaysia Sdn Bhd. This material is distributed in Brazil by Banco Barclays S.A. This material is distributed in Mexico by Barclays Bank Mexico, S.A. Barclays Bank PLC in the Dubai International Financial Centre (Registered No. 0060) is regulated by the Dubai Financial Services Authority (DFSA). Principal place of business in the Dubai International Financial Centre: The Gate Village, Building 4, Level 4, PO Box 506504, Dubai, United Arab Emirates. Barclays Bank PLC-DIFC Branch, may only undertake the financial services activities that fall within the scope of its existing DFSA licence. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority.

Barclays Bank PLC in the UAE is regulated by the Central Bank of the UAE and is licensed to conduct business activities as a branch of a commercial bank incorporated outside the UAE in Dubai (Licence No.: 13/1844/2008, Registered Office: Building No. 6, Burj Dubai Business Hub, Sheikh Zayed Road, Dubai City) and Abu Dhabi (Licence No.: 13/952/2008, Registered Office: Al Jazira Towers, Hamdan Street, PO Box 2734, Abu Dhabi). Barclays Bank PLC in the Qatar Financial Centre (Registered No. 00018) is authorised by the Qatar Financial Centre Regulatory Authority (QFCRA). Barclays Bank PLC-QFC Branch may only undertake the regulated activities that fall within the scope of its existing QFCRA licence. Principal place of business in Qatar: Qatar Financial Centre, Office 1002, 10th Floor, QFC Tower, Diplomatic Area, West Bay, PO Box 15891, Doha, Qatar. Related financial products or services are only available to Business Customers as defined by the Qatar Financial Centre Regulatory Authority. This material is distributed in the UAE (including the Dubai International Financial Centre) and Qatar by Barclays Bank PLC. This material is distributed in Saudi Arabia by Barclays Saudi Arabia ('BSA'). It is not the intention of the publication to be used or deemed as recommendation, option or advice for any action (s) that may take place in future. Barclays Saudi Arabia is a Closed Joint Stock Company, (CMA License No. 09141-37). Registered office Al Faisaliah Tower, Level 18, Riyadh 11311, Kingdom of Saudi Arabia. Authorised and regulated by the Capital Market Authority, Commercial Registration Number: 1010283024. This material is distributed in Russia by OOO Barclays Capital, affiliated company of Barclays Bank PLC, registered and regulated in Russia by the FSFM. Broker License #177-11850-100000; Dealer License #177-11855-010000. Registered address in Russia: 125047 Moscow, 1st Tverskaya-Yamskaya str. 21. This material is distributed in Singapore by the Singapore branch of Barclays Bank PLC, a bank licensed in Singapore by the Monetary Authority of Singapore. For matters in connection with this report, recipients in Singapore may contact the Singapore branch of Barclays Bank PLC, whose registered address is One Raffles Quay Level 28, South Tower, Singapore 048583. Barclays Bank PLC, Australia Branch (ARBN 062 449 585, AFSL 246617) is distributing this material in Australia. It is directed at 'wholesale clients' as defined by Australian Corporations Act 2001. IRS Circular 230 Prepared Materials Disclaimer: Barclays does not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. Copyright Barclays Bank PLC (2013). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional information regarding this publication will be furnished upon request.

US08-000001