Edelweiss says that Mar-21 operating numbers reported by Coal India are a mixed bag. Edelweiss says that Coal India sales volume grew after three successive months of decline owing to a low base and improved traction from power plants. That said, receivables swelled further to Rs 250 bn (at February-21 end). Besides, a sharp uptick in inventory is expected to worsen cash accretion. 

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On the positive front, Edelweiss believes profitability of Coal India would improve owing to:

i) growth in e-auction premium/volumes
ii) larger and more profitable subsidiaries such as NCL and MCL faring better

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Key points to be noted:

i) Sales volume shot up 12% YoY to 59.8mt—highest ever for March
ii) CCL and NCL contribute the most to sales uptick
iii) Inventory swells to 96mt—highest-ever.

Despite a likely improvement in sales volume going ahead, Edelweiss expects cash accretion to be a major concern considering the escalation in working capital.

That said, Edelweiss remains positive on Coal India given:

i) larger subsidiaries are doing well
ii) Coal India is focusing on increasing e-auction volume
iii) e-auction is fetching greater premiums

Operating performance improves for Coal India:

Edelweiss says that Coal India’s Mar-21 sales volume shot up 12% YoY to 59.8mt.

Key points to be noted:

i) Larger subsidiaries MCL and SECL reported offtake growth of 8% YoY and 5% YoY, respectively
ii) Significant improvement in performance of WCL and CCL reporting volume growth of 38% YoY and 12% YoY, respectively
iii) Inventory swells to highest-ever level of 96mt as CIL did not rein in production

Edelweiss highlights that while Coal India has missed its FY21 production target of 660 mt by a fair margin, production is down merely 1% YoY at 596mt. FY21E sales volume are also down merely 1.3% YoY at 574mt, higher than the estimate of 564mt. NCL is the only subsidiary to meet the production target for the second year in a row.
Outlook and valuation: Improvement on the anvil; maintain ‘BUY’

Edelweiss says that Coal India Mar-21 volume/growth at 59.8mt/12% YoY is the highest ever for the corresponding month. Besides, keener focus on more profitable e-auction volume and improving premium would aid profitability. The Brokerage house said that it was concerned about high level of receivables, which hinder cash growth and high level of inventory that further leads to grade slippage resulting in lower realisation. Overall, Edelweiss remains positive on Coal India due to its sustained dividend yield more than 7%. It maintains Buy Rating with a target price of Rs 185.