3QFY2012 Result Update | Mining

February 15, 2012

Coal India
Performance Highlights

NEUTRAL
CMP Target Price
% chg (yoy) 21.0 40.6 444bp 53.5 2QFY12 13,148 2,750 20.9 2,588 % chg (qoq) 16.7 77.3 1,085bp 56.2

`339 -

Y/E March (` cr) Total operating income EBITDA EBITDA margin (%) Adjusted PAT

3QFY12 15,349 4,875 31.8 4,043

3QFY11 12,687 3,466 27.3 2,634

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Mining 214,409 0.6 422/289 638,645 10 18,202 5,532 COAL.BO COAL@IN

Source: Company, Angel Research

Coal Indias (CIL) 3QFY2012 top-line was below our expectations; however, bottom-line beat our estimates on account of lower-than-expected staff cost and higher-than-expected other income. We maintain our Neutral view on the stock. Higher realization aids net sales growth CILs 3QFY2012 net sales increased by 21.0% yoy to `15,349cr (below our estimate of `17,664cr) primarily due to higher average realization. Blended average realization on coal sales increased by 21.2% yoy to `1,392/tonne; however, offtake stood flat yoy at 110mn tonnes. Production grew by 1.4% yoy to 115mn tonnes. Other income boosts bottom-line growth: CILs EBITDA per tonne increased by 40.9% yoy to `442 in 3QFY2012 on account of higher realization. The companys EBITDA increased by 40.6% yoy to `4,875cr, representing an EBITDA margin of 31.8%. Other income grew by 48.4% yoy to `1,856cr on account of higher cash balance and increased treasury yield. Hence, adjusted net income grew by 53.5% yoy to `4,043cr (above our estimate of `3,650cr). Outlook and valuation: CILs 9MFY2012 production stood at 291mn tonnes; hence, it is unlikely to meet its FY2012 production target of 440mn tonnes in our view. Further, we believe that infrastructural bottlenecks (mainly availability of railway rakes) are likely to result in only 2.5% and 4.9% yoy growth in sales volumes during FY2012 and FY2013, respectively. Moreover, higher staff costs are expected to hit CILs operating margins during FY2013. Hence, we maintain Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 90.0 1.8 5.5 2.6

Abs. (%) Sensex CIL

3m 7.8 6.9

1yr (0.4) 11.7

3yr 88.9 -

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

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 44,615 9.3 9,834 142.1 15.6 24.1 21.8 8.3 43.8 36.3 3.9 16.4

FY2011 50,234 12.6 10,867 10.5 17.2 28.0 19.7 6.4 36.7 37.6 3.4 12.0

FY2012E 60,669 20.8 15,583 43.4 24.7 28.8 13.8 4.7 39.7 36.6 2.6 9.0

FY2013E 65,654 8.2 16,076 3.2 25.5 26.8 13.3 3.7 31.4 28.5 2.3 8.4

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

Please refer to important disclosures at the end of this report

Coal India | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance

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

3QFY12 15,349 1,355 8.8 5,622 36.6 496 3.2 347 2.3 1,248 8.1 761 5.0 490 3.2 10,319 67.2 4,875 31.8 4,875 31.8 8 526 1,856 333 5 5,870 38.2 1,832 31.2 4,038 26.3 4,043

3QFY11 12,687 1,235 9.7 4,670 36.8 463 3.7 340 2.7 1,165 9.2 694 5.5 509 4.0 9,077 71.5 3,466 27.3 3,466 27.3 8 431 1,251 67 (12) 4,198 33.1 1,577 37.6 2,622 20.7 2,634

yoy % 21.0 9.7 20.4 7.1 1.9 7.1 9.7 (3.8) 13.7 40.6

2QFY12 13,148 1,791 13.6 5,691 43.3 525 4.0 337 2.6 965 7.3 436 3.3 548 4.2 10,292 78.3 2,750 20.9 -

qoq% 16.7 (24.3) (1.2) (5.4) 2.9 29.4 74.4 (10.6) 0.3 77.3

40.6 (2.9) 22.0 48.4

2,750 20.9 8 573 1,794 273 9

77.3 (8.3) (8.3) 3.4 22.1 (43.1) 58.7 64.6 55.6 56.2

39.8 16.2 54.0 53.5

3,699 28.1 1,113 30.1 2,595 19.7 2,588

Exhibit 2: 3QFY2012 Actual vs. Angel estimates

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

Actual 15,349 4,875 31.8 4,038

Estimates 17,664 4,328 24.5 3,650

Variation (%) (13.1) 12.7 726bp 10.6

February 15, 2012

Coal India | 3QFY2012 Result Update

Result highlights
Higher realization aided net sales growth
Coal Indias 3QFY2012 net sales increased by 21.0% yoy to `15,349cr (below our estimate of `17,664cr) primarily due to higher average realization. Blended average realization on coal sales increased by 21.2% yoy to `1,392/tonne; however, offtake stood flat yoy at 110mn tonnes. Production grew by 1.4% yoy to 115mn tonnes.

Exhibit 3: Sales volumes stood at 110mn tonnes...

120 100
(mn tonnes)

Exhibit 4: ...while realization stood at `1,392 /tonne

1,600 1,400 1,200
(`/tonne)

80 60 40 20 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

Sales volumes

1,000 800 600 400 200 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
Average realization

Source: Company, Angel Research

Source: Company, Angel Research

Higher realization aids EBITDA growth

EBITDA per tonne increased by 40.9% yoy to `442 in 3QFY2012 on account of higher realization. The companys EBITDA increased by 40.6% yoy to `4,875cr, representing EBITDA margin of 31.8%. CILs EBITDA was higher than our expectation on account of lower staff costs provision for 3QFY2012. However, its 4QFY2012 staff cost provision is expected to be much higher. CILs other income grew by 48.4% yoy to `1,856cr on account of higher cash balance and increased treasury yield. The company reported exceptional loss of `5cr in 3QFY2012 and gain of `12cr in 3QFY2011. Adjusted net income grew by 53.5% yoy to `4,043cr (above our estimate of `3,650cr).

February 15, 2012

Coal India | 3QFY2012 Result Update

Exhibit 5: Per tonne analysis

(`/tonne) Production (mn tonnes) Sales (mn tonnes) Revenue Cost Raw-material expenses Staff costs Power and fuel Social overhead Contractual expenses Overburden removal adjustment Other expenses EBITDA
Source: Company, Angel Research

3QFY12 115 110 1,392 936 123 510 45 31 113 69 44 442

3QFY11 113 110 1,148 822 112 423 42 31 105 63 46 314

yoy % 2QFY12 1.4 (0.2) 21.2 13.9 9.9 20.6 7.3 2.1 7.3 9.9 (3.6) 40.9 96 106 1,368 874 142 460 44 28 104 55 41 483

qoq % 19.0 4.0 1.8 7.1 (13.3) 10.9 3.1 13.6 8.5 24.4 7.5 (8.4)

PM initiates action to address coal supply issues

The honorable Prime Minister has approved suggestions made by the Secretary level Committee to solve coal deficit issues faced by Power sector. As per the approved suggestions, CIL will sign Fuel Supply Agreements (FSAs) with power plants that have entered into long-term Power Purchase Agreements (PPAs) with power distribution companies and have already commissioned/would get commissioned on or before March 31, 2015. For power plants that have been commissioned upto December 31, 2011, FSAs will be signed before March 31, 2012. The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years with trigger level of 80% for levy of penalty and 90% for levy of incentive. In case of any shortfall in fulfilling its commitment under the FSAs from its own production, CIL will arrange for supply of coal through imports or through arrangement with State/Central Public Sector Units (PSU) who have been allotted coal blocks. In our view, this is likely to speed up project approvals, clearances for CIL over the medium term. However, currently we lack clarity on penalties, incentives and pricing (in case CIL needs to import coal to meet FSA quantities); hence, we await further clarity on this development.

February 15, 2012

Coal India | 3QFY2012 Result Update

Investment rationale
Production growth to remain muted in the near term
We expect CILs production to remain muted on account of the imposition of stringent environmental laws by regulatory authorities in the near-term. On the sales volumes front, the company is currently facing shortage of railway rakes, despite some improvement in availability of railway rakes during FY2012. Hence, we expect sales volumes growth of only 2.5% and 4.9% in FY2012 and FY2013, respectively.

Staff costs to keep profit growth muted

CIL has recently settled wage agreement with the unions which is expected to results in ~30% increase in wage cost annually for non-executive workers (80% of CILs staff). The incremental outgo including incentives and other allowances is expected to be in the range of `5,000-`6,500cr annually. Moreover, considering that CIL has rolled back price hike taken during January, higher staff costs are expected to result in margin contraction during FY2013.

February 15, 2012

Coal India | 3QFY2012 Result Update

Outlook and valuation

CILs 9MFY2012 production stood at 291mn tonnes; hence, it is unlikely to meet its FY2012 production target of 440mn tonnes in our view. Further, we believe infrastructural bottlenecks (mainly availability of railway rakes) are likely to result in only 2.5% and 4.9% growth in sales volume during FY2012 and FY2013, respectively. Moreover, higher staff costs are expected to hit its margins during FY2013. Hence, we maintain Neutral rating on the stock.

Exhibit 6: Revision of estimates

(` cr) Net sales EBITDA EBITDA margin (%) PBT Net income Net margin (%)
Source: Company, Angel Research

Earlier estimates FY12E 63,100 16,911 26.8 21,472 14,816 23.5 FY13E 67,324 17,269 25.7 22,479 15,510 23.0

Revised estimates FY12E 60,669 17,473 28.8 22,585 15,583 25.7 FY13E 65,654 17,562 26.8 23,299 16,076 24.5

Upgrade/(downgrade) (%) FY12E (3.9) 3.3 200bp 5.2 5.2 221bp FY13E (2.5) 1.7 110bp 3.6 3.6 145bp

Exhibit 7: EPS Angel forecast vs. consensus

Year (`) FY2012E FY2013E
Source: Bloomberg, Angel Research

Angel forecast 24.7 25.5

Bloomberg consensus 25.2 26.2

Variation (%)

(2.1) (2.9)

Exhibit 8: Recommendation summary

Companies CMP Sesa Goa NMDC Coal India MOIL Target Reco. Mcap Upside (` cr) (%) P/E (x) FY12E FY13E P/BV (x) FY12E FY13E EV/EBITDA (x) FY12E 3.1 FY13E 2.8 RoE (%) FY12E 22.3 FY13E 22.5 RoCE (%) FY12E 21.2 FY13E 13.3 (`) price (`)

248 196 339 269

- Neutral 227 Buy

21,545 77,887 4,513

15 -

6.9 10.4 13.8 11.1

5.6 9.3 13.3 10.9

1.4 3.1 4.7 1.9

1.1 2.5 3.7 1.7

6.0 9.0 5.5

4.8 8.4 5.3

33.9 39.7 17.9

29.8 31.4 16.1

41.4 36.6 18.5

36.2 28.5 16.4

- Neutral 214,409 - Neutral

Source: Company, Angel Research

February 15, 2012

Coal India | 3QFY2012 Result Update

Profit & loss statement (Consolidated)

Y/E March (` cr) Net sales Other operating income Total operating income % chg Total expenditure Other mfg costs Personnel Other EBITDA % chg (% of Net sales) Depreciation EBIT % chg (% of Net sales) Interest charges Other income (% of PBT) FY2008 34,608 34,608 9.7 28,331 7,679 12,635 8,017 6,277 (9.4) 18.1 1,561 4,716 (15.4) 13.6 169 3,764 45.3 232 8,311 (4.3) 8,079 3,363 41.6 4,285 1.9 12.4 6.8 6.8 1.9 FY2009 40,811 40,811 17.9 38,174 8,315 19,742 10,117 2,637 (58.0) 6.5 1,691 946 (79.9) 2.3 179 5,120 87.0 176 5,887 (29.2) 5,711 3,636 63.7 4,063 (5.2) 10.0 6.4 6.4 (5.2) FY2010 44,615 44,615 9.3 33,870 6,053 16,656 11,161 10,745 307.5 24.1 1,329 9,416 895.2 21.1 89 4,901 34.4 209 14,228 141.7 (54) 13,965 4,342 31.1 9,834 142.1 22.0 15.6 15.6 142.1 FY2011 50,234 50,234 12.6 36,177 5,733 18,211 12,233 14,057 30.8 28.0 1,673 12,384 31.5 24.7 79 4,796 28.0 578 17,101 20.2 (60.2) 16,463 5,596 34.0 10,867 10.5 21.6 17.2 17.2 10.5 FY2012E 60,669 60,669 20.8 43,196 8,312 21,841 13,044 17,473 24.3 28.8 1,941 15,531 25.4 25.6 45 7,098 31.4 22,585 32.1 22,585 7,001 31.0 15,583 43.4 25.7 24.7 24.7 43.4 FY2013E 65,654 65,654 8.2 48,092 9,290 24,620 14,181 17,562 0.5 26.8 2,101 15,462 (0.4) 23.6 41 7,878 33.8 23,299 3.2 23,299 7,223 31.0 16,076 3.2 24.5 25.5 25.5 3.2

Provision
Recurring PBT % chg Extra. Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) % chg (% of Net sales) Basic EPS (`) Fully diluted EPS (`) % chg

February 15, 2012

Coal India | 3QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Share warrants Minority interest Total loans Shifting and rehabilitation fund Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-progress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Net deferred tax assets Misc. Expenditure Total assets 31,859 33,255 34,945 36,852 21,421 22,246 22,914 23,878 10,439 11,009 12,031 12,974 1,539 1,718 1,822 1,505 2,108 1,282 2,087 1,064 39,552 25,820 13,733 2,087 1,064 75,556 56,983 9,923 8,650 45,023 30,533 873 3 48,293 43,152 27,921 15,232 2,087 1,064 86,019 66,570 9,923 9,527 45,134 40,885 873 3 60,144 6,316 6,316 6,316 6,316 6,316 38,889 45,205 33 1,434 1,621 48,293 6,316 50,860 57,176 33 1,314 1,621 60,144 10,884 12,692 19,531 27,001 17,201 19,008 25,848 33,317 1,884 946 2 2,148 1,224 24 2,087 1,477 33 1,554 1,621 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

20,030 22,382 29,436 36,525

36,292 46,936 54,313 64,396 20,961 29,695 39,078 45,862 10,266 11,727 5,065 5,698 637 5,514 8,665 6,570 9,923 8,611

30,594 39,942 41,385 44,873 6,994 12,929 19,523 1,052 1,086 873 3

20,030 22,382 29,436 36,525

February 15, 2012

Coal India | 3QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash flow from operations (Inc.)/ Dec. in fixed assets (Inc.)/ Dec. in investments Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid Others Cash flow from financing Inc./(Dec.) in cash Opening cash bal. Closing cash bal. FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 8,190 1,380 2,762 (534) 2,930 8,869 (1,835) (1,835) (260) (1,995) 253 (2,002) 5,032 15,929 20,961 5,739 1,063 5,606 2,103 2,791 11,719 (1,875) 213 (1,662) 265 (1,705) 117 (1,324) 8,734 20,961 29,695 13,965 679 2,268 406.4 3,999 13,320 (1,998) 223 (1,775) (62) (2,210) 109 (2,163) 9,383 29,695 39,078 16,463 1,673 (3,822) 305.7 5,623 8,997 (2,487) 3,184 697 (410) (2,583) 82 (2,911) 6,784 39,078 45,862 22,585 1,941 111 7,001 17,636 (2,700) (2,700) (120) (3,695) (3,815) 11,121 45,862 56,983 23,299 2,101 (765) 7,223 17,412 (3,600) (3,600) (120) (4,106) (4,226) 9,586 56,983 66,570

February 15, 2012

Coal India | 3QFY2012 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value Returns (%) RoCE (Pre-tax) RoE (pre-tax) Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage (1.2) (3.3) 27.9 (1.5) (11.0) 5.3 (1.5) (3.6) 105.8 (1.4) (3.2) 156.6 (1.3) (3.2) 346.6 (1.2) (3.8) 375.2 1.1 44 17 9 44 1.3 35 17 8 40 1.3 47 18 8 43 1.4 45 20 8 44 1.6 45 20 8 42 1.6 45 20 8 45 24.1 25.6 4.5 22.4 36.3 43.8 37.6 36.7 36.6 39.7 28.5 31.4 6.8 6.8 9.2 2.7 27.2 6.4 6.4 9.1 2.7 30.1 15.6 15.6 17.7 3.5 41.0 17.2 17.2 19.9 3.9 52.8 24.7 24.7 27.7 4.5 71.6 25.5 25.5 28.8 5.0 90.6 50.0 36.9 12.5 0.8 5.6 30.8 9.7 52.8 37.4 11.3 0.8 4.5 70.3 8.3 21.8 19.2 8.3 1.0 3.9 16.4 6.0 19.7 17.1 6.4 1.1 3.4 12.0 4.6 13.8 12.2 4.7 1.3 2.6 9.0 3.3 13.3 11.8 3.7 1.5 2.3 8.4 2.5 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

February 15, 2012

10

Coal India | 3QFY2012 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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

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

Coal India No No No No

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

Ratings (Returns):

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

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

Neutral (-5 to 5%)

February 15, 2012

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