1QFY2012 Result Update | Mining

August 18, 2011

Coal India
Performance Highlights

NEUTRAL
CMP Target Price
% chg (yoy) 21.4 68.5 985bp 64.1 4QFY11 13,934 5,717 41.0 4,799 % chg (qoq) 4.1 (10.5) (574)bp (13.6)

`391 -

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

1QFY12 14,499 5,116 35.3 4,144

1QFY11 11,940 3,037 25.4 2,526

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 246,780 0.4 422/287 2347245 10 16,470 4,944 COAL.BO COAL@IN

Source: Company, Angel Research

For 1QFY2012, Coal Indias (CIL) net profit came in above our expectations mainly on account of lower-than-expected costs. However, given the rich valuations, we continue to maintain our Neutral view on the stock. Strong performance led by higher coal prices: CILs net sales increased by 21.4% to `14,499cr in 1QFY2012 mainly driven by higher realisations (+15.8% yoy to `1,368/tonne) and supported by increased offtake (+4.9% yoy to 106mn tonnes). Despite fall in coal production, coal sales volumes increased mainly due to inventory liquidation of 10mn tonnes. The increased offtake was aided by higher availability of railways rakes to 168 rakes/day in 1QFY2012 (+9.1% yoy). Decrease in some costs aid EBITDA growth: Social overhead and other expenses fell by 37.4% and 32.6% yoy to `293cr and `438cr, respectively in 1QFY2012. EBITDA margin expanded by 985bp yoy to 35.3%, mainly driven by higher realisations. Thus, EBITDA grew by 68.5% yoy to `5,116cr. Other income grew by 32.4% yoy to `1,559cr and tax rate declined 197bp yoy to 30.4%. As a result, net income increased by 64.1% yoy to `4,144cr. Outlook and valuation: We expect CILs volume growth to remain muted in the wake of stricter government regulations on mining companies. Also, we believe any further chances of rise in coal prices by CIL will be only in case its wage revisions exceed its estimates. At the CMP, the stock is trading at 11.5x FY2012E and 10.2x FY2013E EV/EBITDA. We believe the current price level fairly discounts the robust business model and steady volume growth over the medium term. Hence, we maintain our Neutral view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 90.0 1.5 6.4 2.1

Abs. (%) Sensex CIL

3m (9.2) (1.3)

1yr (8.7) -

3yr 12.5 -

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 24.2 9.2 43.8 36.3 4.5 18.7

FY2011 50,234 12.6 10,867 10.5 17.2 28.0 21.9 7.1 36.7 37.6 3.9 13.8

FY2012E 62,487 24.4 14,672 35.0 23.2 26.8 16.8 5.5 37.5 34.9 3.1 11.5

FY2013E 66,674 6.7 15,889 8.3 25.2 26.8 15.5 4.3 31.2 29.2 2.7 10.2

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 | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 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
Source: Company, Angel Research

1QFY12 1QFY11 14,499 1,501 10.4 4,872 33.6 463 3.2 293 2.0 1,106 7.6 588 4.1 438 3.0 9,261 63.9 5,116 35.3 5,116 35.3 5 431 1,559 297 13 5,955 41.1 1,812 30.4 4,144 28.6 11,940 499 4.2 4,336 36.3 433 3.6 468 3.9 1,012 8.5 433 3.6 650 5.4 7,831 65.6 3,037 25.4 3,037 25.4 57 411 1,178 (11) 3,736 31.3 1,210 32.4 2,526 21.2

yoy % FY2011 FY2010 21.4 200.8 12.4 6.8 (37.4) 9.3 35.7 (32.6) 18.3 68.5 50,234 3,978 7.9 18,211 36.3 1,755 3.5 2,229 4.4 4,580 9.1 2,618 5.2 2,806 5.6 36,177 72.0 14,057 28.0 68.5 (90.4) 4.8 32.4 14,057 28.0 79 1,673 4,796 578 (60) 59.4 49.7 64.1 16,463 32.8 5,596 34.0 10,867 21.6 44,615 4,314 9.7 16,656 37.3 1,740 3.9 1,963 4.4 3,844 8.6 3,054 6.8 2,300 5.2 33,870 (75.9) 10,745 24.1 10,745 24.1 89 1,329 4,901 209 (54) 13,965 31.3 4,342 31.1 9,622 21.6

yoy% 12.6 (7.8) 9.3 0.9 13.5 19.2 (14.3) 22.0 6.8 30.8

30.8 (10.8) 25.8 (2.1) 176.0 12.2 17.9 28.9 12.9

Exhibit 2: 1QFY2012 Actual vs. Angel estimates

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

Actual 14,499 5,116 35.3 4,144

Estimates 15,078 5,172 34.3 3,943

Variation (%) (3.8) (1.1) 98bp 5.1

August 18, 2011

Coal India | 1QFY2012 Result Update

Result highlights
Strong performance led by higher realisation
Net sales for the quarter increased by 21.4% to `14,499cr (slightly below our estimate of `15,078cr) mainly driven by higher realisations and supported by increased offtake. Average realisation grew by 15.8% yoy to `1,368/tonne on account of price hike undertaken in February 2011. Despite fall in coal production by 2.1% yoy to 96mn tonnes, coal sales volumes increased by 4.9% yoy to 106mn tonnes mainly due to inventory liquidation of 10mn tonnes. The increased offtake was aided by higher availability of railways rakes to 168 rakes/day in 1QFY2012 (154 rakes/day in 1QFY2011).

Exhibit 3: Sales volumes stood at 106mn tonnes...

120 115

Exhibit 4: .. while realisation stood at `1,368/tonne

1,400 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,000

(mn tonnes)

110 105 100 95 90 1QFY11 2QFY11 3QFY11 Offtake 4QFY11 1QFY12

(`/tonne)

1QFY11

2QFY11 3QFY11 4QFY11 Average realisation

1QFY12

Source: Company, Angel Research

Source: Company, Angel Research

Decline in costs aids EBITDA growth

Staff cost for the quarter increased by 12.4% yoy to `4,872cr. Social overhead and other expenses fell by 37.4% and 32.6% yoy to `293cr and `438cr, respectively. Hence, EBITDA margin expanded by 985bp yoy to 35.3%, mainly driven by higher realisations. EBITDA/tonne came in substantially higher at `483 vs. `301 in 1QFY2011. Thus, EBITDA grew by 68.5% yoy to `5,116cr. Other income grew by 32.4% yoy to `1,559cr mainly on account of rising interest rates. Further, tax rate for the quarter was lower at 30.4% as against 32.4% in 1QFY2011 on account of carry-forwards of accumulated losses in some of its subsidiaries. As a result, net income increased by 64.1% yoy to `4,144cr (above our estimate of `3,943cr).

August 18, 2011

Coal India | 1QFY2012 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

1QFY12 96 106 1368 874 142 460 44 28 104 55 41 483

1QFY11 98 101 1182 775 49 429 43 46 100 43 64 301

yoy % (2.1) 4.9 15.8 12.7 186.8 7.1 1.9 (40.3) 4.2 29.4 (35.7) 60.6

August 18, 2011

Coal India | 1QFY2012 Result Update

Investment rationale
Production growth to remain muted in the near term
We expect muted production volume growth in FY2012 on account of the imposition of CEPI and the ongoing go and no-go issue. Although availability of railway rakes has improved in 1QFY2012, CIL requires further improvement in railway rakes availability to reach its offtake targets for FY2012.

Marin accretive price hike unlikely in our view

CIL had increased prices of coal effective February 2011, in wake of the anticipated increase in staff costs (wage revision due in July 2011). Going forward, we expect CIL to raise prices only in case employee costs rise higher than its estimates. Thus, we do not expect price hikes (even if CIL hikes prices) to be margin accretive hereon.

August 18, 2011

Coal India | 1QFY2012 Result Update

Outlook and valuation

We expect CILs volume growth to remain muted in the wake of stricter government regulations on mining companies. Also, we believe any further chances of rise in coal prices by CIL will be only in case its wage revisions exceed its estimates. At the CMP, the stock is trading at 11.5x FY2012E and 10.2x FY2013E EV/EBITDA. We believe the current price level fairly discounts the robust business model and steady volume growth over the medium term. Hence, we maintain our Neutral view on the stock.

Exhibit 6: Key assumptions

(mn tonnes) Raw coal sales volume Linkage E-auction coal sales volume Beneficiated coal sales volume Average blended realisation (`/tonne)
Source: Angel Research

FY2012E 384 55 19 1,364

FY2013E 396 57 21 1,408

We have raised our revenue and profitability estimates slightly for FY2012 and FY2013 on the back of higher-than-expected 1QFY2012 realisations.

Exhibit 7: Revision of estimates

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

Earlier estimates FY12E 60,311 16,163 26.8 20,538 13,557 22.5 FY13E 64,355 17,247 26.8 21,420 14,139 22.0

Revised estimates FY12E 62,487 16,746 26.8 21,263 14,672 23.5 FY13E 66,674 17,869 26.8 23,028 15,889 23.8

Upgrade/(downgrade) (%) FY12E 3.6 3.6 0bp 3.5 8.2 100bp FY13E 3.6 3.6 0bp 7.5 12.4 186bp

Exhibit 8: EPS Angel forecast v/s consensus

Year (`) FY2012E FY2013E Angel forecast 23.2 25.2 Bloomberg consensus 23.9 27.4 Variation (%) (2.8) (8.2)

Source: Bloomberg, Angel Research

Exhibit 9: Recommendation summary

Companies Sesa Goa NMDC Coal India MOIL CMP (`) 226 Target price (`) 335 Buy Reco. Mcap (` cr) 19,641 Upside (%) 48 P/E (x) FY12E 4.8 FY13E 5.5 P/BV (x) FY12E 1.6 FY13E 1.3 EV/EBITDA (x) FY12E 0.5 FY13E 2.3 RoE (%) FY12E 40.7 FY13E 25.2 RoCE (%) FY12E 42.9 FY13E 30.6

220 391 305

- Neutral - Neutral - Neutral

87,203 246,780 5,130

12.4 16.8 10.6

10.8 15.5 10.0

3.6 5.5 2.1

2.8 4.3 1.8

7.6 11.5 5.4

6.2 10.2 4.7

32.2 37.5 21.2

29.2 31.2 19.6

40.3 34.9 23.9

36.6 29.2 21.7

Source: Company, Angel Research

August 18, 2011

Coal India | 1QFY2012 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 21,263 24.3 21,263 6,592 31.0 14,672 35.0 23.5 23.2 23.2 35.0 23,028 8.3 23,028 7,139 31.0 15,889 8.3 23.8 25.2 25.2 8.3 FY2012E 62,487 62,487 24.4 45,740 8,561 21,870 15,309 16,746 19.1 26.8 2,000 14,747 19.1 23.6 45 6,561 30.9 FY2013E 66,674 66,674 6.7 48,806 9,434 22,903 16,469 17,869 6.7 26.8 2,134 15,735 6.7 23.6 41 7,334 31.8

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

August 18, 2011

Coal India | 1QFY2012 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 40,852 25,878 14,974 2,087 1,064 73,953 54,967 9,923 9,063 45,081 28,872 873 3 47,874 43,852 28,011 15,841 2,087 1,064 85,313 65,720 9,923 9,671 45,150 40,162 873 3 60,031 6,316 6,316 6,316 6,316 6,316 38,470 44,786 33 1,434 1,621 47,874 6,316 50,746 57,063 33 1,314 1,621 60,031 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

August 18, 2011

Coal India | 1QFY2012 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 21,263 2,000 (244) 6,592 16,427 (4,000) (4,000) (120) (3,202) (3,322) 9,105 45,862 54,967 23,028 2,134 (537) 7,139 17,486 (3,000) (3,000) (120) (3,613) (3,733) 10,753 54,967 65,720

August 18, 2011

Coal India | 1QFY2012 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 (1.1) (3.0) 27.9 (1.4) (10.4) 5.3 (1.4) (3.4) 106.2 (1.3) (3.2) 156.6 (1.2) (3.2) 329.1 (1.1) (3.6) 381.8 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 34.9 37.5 29.2 31.2 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 23.2 23.2 26.4 3.9 71.0 25.2 25.2 28.5 4.4 90.4 55.6 41.0 13.8 0.7 6.3 34.9 10.9 58.6 41.6 12.5 0.7 5.2 79.9 9.4 24.2 21.3 9.2 0.9 4.5 18.7 6.8 21.9 19.0 7.1 1.0 3.9 13.8 5.3 16.8 14.8 5.5 1.0 3.1 11.5 4.0 15.5 13.7 4.3 1.1 2.7 10.2 3.0 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

August 18, 2011

10

Coal India | 1QFY2012 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%)

August 18, 2011

11