Expect CIL revenue to grow in line with market growth, says Kotak

The analyst meet made us appreciate prospects (1) of CIL outperforming in the key powergen market over the medium term and (2) outsourcing of select engines for India demand boosting bottom-line. Mandates for new export products from parent to CIL are a function of relative scale of Indian demand for such products. Near-term prognosis of the management remains weak for margin (no scope of price hikes in powergen) and exports (uncertain global demand).

We retain our R680 March 2020 SoTP. CIL aims to garner market share by leveraging its scale, technology leadership and strength of distribution network to make inroads in the Indian market. It is more confident of growing share in powergen based on (1) its presence/offering in businesses driving growth (data centers, commercial realty, hospitality) versus in the past (telecom) and (2) its expectation of CPCB-III increasing scope of differentiation).

Industrials segment would also benefit from (1) new product launches (under slung solution for power car), (2) content growth (railways, marine) and (3) advancement in telematics (can predict failures of engines/components). Near-term prognosis remains healthy with domestic revenue growth guidance of 10% for FY2019.

CIL shared instances where good scale of domestic demand drove the decision to manufacture for export demand from its facilities (K19, K38, K50) and where larger scale of overseas demand drove the decision to cater to related domestic demand from outside CIL (CTIL). It shared that the decision regarding which entity invests in manufacturing in India gets taken considering what was best for CIL’s bottom-line. Implication of such rationale is that other new export products lacking domestic scale would unlikely see CIL investing.

For the LHP portfolio, the management shared muted expectations of recovery considering volatile oil price movement. It also shared stiff competition in the LHP segment, obviating market share gains in a weak market. Overall exports revenue guidance stays 0-5% for FY2019. CIL shared the scope of improving costing based on past programmes (ACE, six sigma, AMaZe) and recent ones (ASCent). It does not see scope to increase prices in the powergen segment given the current competitive intensity.

Coal India Ltd