ContentsReport on Coal India Limited......................................................................................................................1

Executive Summary.....................................................................................................................................3

Overview of the Industry.............................................................................................................................4

Changes in Environment of Industry...........................................................................................................4

Industry Analysis..........................................................................................................................................5

Porters Analysis...........................................................................................................................................5

Threat of New Entrants...........................................................................................................................5

Threat of Substitutes...............................................................................................................................6

Competitive Rivalry.................................................................................................................................6

Bargaining Power of Customers..............................................................................................................6

Bargaining Power of Suppliers.................................................................................................................7

The Company...............................................................................................................................................7

Market.....................................................................................................................................................7

Operations and Technology Analysis......................................................................................................7

Financial Analysis (FY 2009-2012).........................................................................................................8

Profitability and investment valuation ratios.......................................................................................8

Liquidity ratios.....................................................................................................................................8

Management efficiency ratios.............................................................................................................9

Legal and Regulatory Environment..........................................................................................................9

Human Resource Policies......................................................................................................................10

Future Outlook..........................................................................................................................................10

Conclusion.................................................................................................................................................11

Exhibits.....................................................................................................................................................13

Exhibit 1 : Subsidiaries of Coal India......................................................................................................13

Exhibit 2: Balance Sheet of Coal India Limited.......................................................................................13

Exhibit 3: Income Statement of Coal India Limited............................................................................15

Exhibit 4: Coal India Limited Du-Pont Chart Analysis.............................................................................19

Exhibit 5: Projected Coal Demand.........................................................................................................20

Exhibit 6: Projected Domestic Coal Production (in million tonnes).......................................................21

1

2

Executive Summary Coal India Limited, a Maharatna company produces around 81% of total coal produced in the

country which accounts for 70% of India’s consumption in power sector. Coal India has been a

monopoly since the implementation of ‘Coal Mines Nationalization Act’ in 1973. 8 subsidiaries

across India were nationalized and brought under CIL in1971. India produces around 6% of total

world’s coal production. Industry analysis shows that out of 1000 million tonnes demand of coal

in India in 2011-12, 137 million tonnes is imported and rest 86.3 % is produced domestically.

Major competitors like Singareni Collieries ltd, Tata Steel and other captive mines operating in

India account for only 19 % of total coal production. This makes Coal India a true natural

monopoly. Government regulations, highly capital intensive and time consuming efforts required

in setting Coal mining plants restricts the new entrants and minimizes the risk of any potential

competitor entering the industry. Obligations to reduce greenhouse gas emission and comply

with Kyoto protocol mandates that India invest in renewable sources of energy, thus raising the

threat of substitutes. Net profit margin increased from 79.59% in FY 2010 to 84.73 % in FY2012

whereas the net operating profit per share reached 0.66 in FY 2012.The increase in profitability

ratios during the 2010-12 periods indicates that the company has provided good returns to its

investors and business has generated high return on the capital employed. The company has a

very healthy current ratio of 2.41 indicating that it has enough cash to finance its daily operations

and the low values of debt equity ratio of 0.06 indicate it does not rely on external borrowing.

The coal industry is estimated to grow at a (CAGR) compounded annual growth rate of around 9

% during the period of 2011-12 to 2013-14. A great boost will be given by the mergers and

acquisitions of mines of coal in overseas market and also by the support of government and

increasing demand for coal by power, cement and steel sector.

3

Overview of the IndustryCoal is India’s primary source of fuel and is expected to remain the same for at least next two

decades. It contributes around 70% of India’s power supply. Before 1970 there were a large

number of private companies involved in mining of coal. Later on, to improve the mining

standards, working conditions, optimize resources and prevent wasteful mining, activities like

mining, production, exploration, distribution and sale were all nationalized. The present state is

the result of implementation of ‘Coal Mines Nationalization Act’ in 1973; the industry has had

monopoly of a single producer since then. Currently, the industry has advantages of surplus

reserves; large workforce comprising of both skilled and un-skilled professionals and an ever

rising demand for coal. Coal reserves being available at relatively shallow depth has helped in

mining the coal using cost efficient methods. The industry has huge potential due to the India’s

rapid economic growth and difference between domestic and international coal prices. Major

infrastructure industries like Steel, Power and Cement require coal as an important raw material.

Thus coal is an essential part in India’s economic growth. (World Energy Council, 2012)

Changes in Environment of IndustryFrom a time when industry was dominated by private players, the evolution of the coal industry

has led to numerous changes. Nationalization of the industry ensured that control came in the

hands of government of India. Changes were also brought in the actual process of production. In

the current scenario, even after having one of the largest reserves, global energy suppliers stand

at a position that is way ahead of our industry. China is the world leader in coal production and

accounts for almost half of the total world production. The reason for India lagging behind is the

inferior infrastructure and obsolete mining techniques employed by Indian companies.

Infrastructure needs to be created and this would require substantial investment from both

government and private parties. To facilitate the private investment in coal mining government

allocation captive coal blocks for development and mining by private players. Currently the

industry faces two main problems.

a) Demand exceeding supply

b) Coal Allocation Scam

4

There has been acute shortage of coal because of bottlenecks in system like delays in obtaining

environmental clearance, high content of water in coal and low productivity from coal mines. As

per Central Electricity Authority of India, there were 31 power plants in August, 2012 whose

coal stock had reached the critical level of four to seven days. Such shortages lead to increase in

the import of coal which in-turn increase the current account deficit of India. Though coal is

available aplenty, operational in-efficiencies have hampered production.

Coalgate is a scandal in which Comptroller and Auditor General of India (CAG) accused Indian

Government for inefficient allocation of coal blocks for captive mining during the period 2004-

2009. As per CAG, government could have allocated coal blocks based through competitive

bidding. By doing so it would have brought in Rs185591 crore to exchequer. The Supreme Court

recently directed Indian Government to stop mining in all captive coal blocks till the

investigation is completed. This has further dented production by 50million tonnes annually. The

net situation is that there is demand in excess of supply. This demand-supply gap had forces

Indian government to look to international markets for obtaining coal. Importing coal comes with

its own set of issues like increased imports, trade deficit and current account deficit. The industry

as such is under lot of stress to increase production for the economy to improve. (Pannu, 2012)

Industry AnalysisThe annual demand for coal in India was 730million tons in 2010-2011 and is expected to reach

2000 million tons by 2030. The core industries of India: electricity, Iron and steel, cement

depends on coal to run their plants. This shows the significance of coal in determining the Index

of Industrial Production (IIP) and Gross Domestic Production (GDP) of India. (World Energy

Council, 2012)

Porters Analysis

Threat of New EntrantsThe coal industry in India is highly regulated and controlled by government of India. Coal India

produces around 81% of India’s total coal production. Setting up a Coal mining plant is highly

5

capital intensive and time consuming. This entry barrier and government regulations minimizes

the risk of any potential competitor entering the industry. (Coal India Limited)

Threat of SubstitutesIndia being a signatory of the Kyoto protocol has the obligation to reduce its green house gas

emission level. This mandates that India invest in renewable sources of energy like hydro-

electric, wind and solar.

(UNFCC)Government of India allows 100% FDI in renewable energy sector which has enabled

inflow of foreign capital to support the capital intensive industry. This sector now accounts for

12.3% of India’s Installed Power Capacity. This industry has grown at a CAGR of 23% between

2007 and 2012. These rapid developments in renewable energy pose a threat to the conventional

sources of energy like coal.

Competitive RivalryThe major competitors to Coal India are Singareni Collieries ltd, Tata Steel and other captive

mines operating in India (Exhibit 1). Coal India dominates the market with 81% market share in

total production. The Indian Coal Market is highly insulated from the international markets and

prices are regulated by the government. With a commanding market share and price regulation

the competition poses little threat to the Coal India.

Bargaining Power of CustomersIndia currently produces around 800 million tonnes of coal, but the demand is close to 1billion

tonnes or 20% shortage in supply. (Moneycontrol, 2012) Due to this shortage in supply the

customers hardly have any bargaining power. Currently India imports around 137million tonnes

of coal from international markets at prices higher than the domestic prices. So even via imports

the customers don’t get a better deal. This limits the total customer bargaining power. (Moitra,

2012)

6

Bargaining Power of SuppliersCoal India owns all its mines through eight of its subsidiaries. But being a public sector

undertaking it has the obligation to meet the shortfall in the Industry. To meet this Coal India

Imports Coal from international markets at spot prices, this provides it little power to bargain.

All its mining equipments are purchased through MOU from various PSU’s which again

provides no bargaining power due to government regulation. Thus the threat due to bargaining

power of suppliers is limited only to the imported coal. (Coal India Limited)

The Company

Market

Coal India limited was set-up as a state owned coal mining corporate with eight subsidiaries

(Exhibit 1). Coal India‘s present capacity is around 450million tonnes and is expected to increase

by another 430 million tonnes by the end of the Twelfth five year plan. Coal India accounts for

81% of India’s total coal production. In 2012 it is estimated that India would require 980 MT

(million tonnes) of coal and will have a supply of only 795 (million tonnes). To fulfil this deficit

India imports around 137 MT of coal. (Business Today, 2012)

Operations and Technology Analysis

To satisfy India’s burgeoning energy needs, Coal India has consistently tried to increase

efficiency of its operations and has adopted cutting edge mining and enterprise technology to do

so. Supply of coal is governed by Fuel Supply Agreements (FSA) that is legally enforced. New

customers have to apply for a Letter of Assurance (LOA) after receiving appropriate clearances

from the coal ministry. If they meet the conditions of the LOA in a given period of time they are

offered coal on FSA basis. The company has also earmarked 10% of its production for e-auctions

to bring more transparency into coal marketing. It operates in 81 mines across India and recently

acquired a mining company in Mozambique and rechristened it the ‘Coal India Africana

Limitada’. The government of India conferred the status of ‘MAHARATNA’ to Coal India as

recognition of its performance. (Coal India)

7

Financial Analysis (FY 2009-2012)

The company has shown robust financial growth in the last three financial years and raised

capital of Rs 15,000 crore in 2010 through an IPO. It is the largest IPO by monetary value in

Indian Markets. Analysis of the Balance sheets (Exhibit 2) and profit and loss statement (Exhibit

3) revealed an increase in revenues by 26.95% and net profit margin by 20.86% in FY ‘12. The

total debt of the company reduced by 31.09% from FY ’10 to FY ’12 which indicates a

significant reduction in dependence on external borrowings. The Working capital increased by

27.69% in FY ’12 over FY ’11 which indicates a healthy operating environment and lack of

credit shortages. Important financial ratios based on DuPont analysis (Exhibit 4) are listed below:

Profitability and investment valuation ratios

Indicator FY ‘12 FY ‘10

Net Profit Margin 84.73 79.59

Return on Net Worth 41.22 22.15

Return on capital employed 43.29 22.92

Dividend per share 10 3.50

Net operating profit per share 0.66 0.71

The profitability ratios have increased during this period and this indicates that the company is

provided good returns to its investors. The business has generated high return on capital

employed and this is also reflected in the dividends paid to the shareholders

Liquidity ratios

Indicator FY ‘12 FY ‘10

Current Ratio 2.41 3.22

Debt equity ratio 0.06 0.09

The company has a very healthy current ratio which indicates that it has enough cash to finance

its daily operations and the low values of debt equity ratio indicate it does not rely on external

borrowing.

8

Management efficiency ratios

Indicator FY ‘12 FY ‘10

Asset turnover ratio 0.02 1.19

Fixed Asset turnover ratio 1.17 1.19

Inventory turnover ratio 26.29 18.58

Current Asset turnover ratio 0.34 0.31

A fixed asset ratio of nearly 1 indicates that the company has sales equivalent to its long term

assets value and its high inventory turnover ratio indicates that sales generated in the business are

being reinvested in the operations and reduce dependence on borrowings.

Cash Flow indicator Ratios

Indicator FY ‘12 FY ‘10

Earnings retention ratio 22.50 29.63

Dividend payout ratio net

profit

78.24 58.32

The above ratios indicate that the company is not retaining a huge amount of profits for investing

back to the business. It is paying out huge amount of dividends. This may prove beneficial in the

short run but is not an advisable long term strategy.

Legal and Regulatory EnvironmentThe Coal mining industry is heavily regulated by the government of India. The Mines and

Minerals (Development & regulation) Act, 1957 regulates the exploration for coal mines and

also prevents the exploitation of these mines. The Environmental Protection Act, 1986 governs

the mining operations and ensures that coal is mined in an environmentally friendly way. The

coal mines in the country were nationalized in 1973 and through the Coal Mines

(Nationalization) amendment bill, 2000 the government allowed private companies to do captive

mining. Recently, coal block allocation scam was exposed and the mining licenses of many

private parties have been cancelled. (Coal India Limited)

9

Human Resource Policies

Coal India Limited employs around 400000 people and the company employs an inclusive policy

to improve the quality of life of its employees. Recruitment is through a national level talent

exam and the selected candidates are put through a year’s probation at one of its 26 training

centers. Being a public sector entity it has to deal with trade unions and encourages participation

of the unions in formulating HR policies. Medical facilities and schooling for children is

provided in mining areas. The company also gives vocational training to local populace in

mining areas and employs them on a contractual basis. Its policy of ‘Mining with a Human face’

cares for both the people affected and the environment in mining areas. The company employs

eco-friendly mining techniques and also offers ‘Coal India scholarships’ for 100 below poverty

line students each year. (Coal India Limited)

Future OutlookMajor consumers of coal in India are power plants. In 2012 its consumption accounted for 73%

(539million tonnes) of total production and is expected to reach 74% (1659million tonnes) by

2032.India is the fourth largest energy consumer in the world in 2011. The electric consumption

is set to grow at an average rate of 3.3% through 2035. To meet this demand India’s installed

electricity production capacity has to be increased by 234GW. Roughly 70% of current demand

is met by coal fired plants. The commissioning of Nuclear Plants has been delayed due to

resistance from people and the further expansion of these plants is also uncertain. Captive mines

in India were producing around 50million tonnes annually (Exhibit 4). But recent scams in coal

block allocation have forced the government to shut down these coal mines. Renewable sources

like hydro- electric and wind have limited contribution and are dependent on rain and wind for

power generation. El-Nino phenomenon which causes drought and shifting wind patterns has

made these resources highly un-reliable in recent times. Under these circumstances the

dependence on coal for Electricity generation is going to increase. (Moitra, 2012) (World Energy

Council, 2012)

10

The coal industry is estimated to grow at a (CAGR) compounded annual growth rate of around 9

% during the period of 2011-12 to 2013-14. A great boost will also be given by the mergers and

acquisitions of mines of coal in overseas market or worldwide. (Coal India Limited)

Coal India has the largest coal reserves (64000million tonnes) in the world. There are 147

ongoing projects which are expected to be completed in the 12th five year plan (2012-2017)

which will increase coal production by 437 million tonnes. This will help coal India meet the

increasing demand for coal and maintain its commanding position in the industry.

ConclusionIndia is among the fastest growing economies of the world. With its consistent growth rate due to

industrialization and opening up of economy, the power and energy requirements of the country

have also gone up substantially. Coal takes care of 52% of primary commercial energy needs in

India, as compared to world’s 29%. Also, India’s 66% power generation is dependent on coal.

India follows China and USA as world’s third largest coal producing nation.

According to Planning Commission, India's coal imports are expected to reach 185 million

tonnes (MT) by 2017. Also, during the eleventh five year plan, total demand of coal increased

by 8% while domestic production grew by 4.61% only.

Most of these demands are taken care by Coal India Ltd. Coal India Ltd came into existence in

November 1975 as an organized state owned coal mining corporate. Today, the company is

world’s largest coal producer. Coal India Ltd operates through 81 mining areas with 7 wholly

owned coal producing subsidiaries and 1 mine planning and Consultancy Company spread over

8 provincial states of India.

CIL was granted the Maharatna recognition in April 2011, after it fulfilled the financial and other

prerequisites. It is a privileged status given to select state owned enterprises by Government of

India in order to empower them to expand their operations.

In the current economic scenario, the image of Coal India Ltd has taken a hit due to few reasons.

Coal India Ltd informed power generating companies that it will be able to supply on 60% of the

requirement as compared to committed value of 80%. With already slowing economy and Index

of Industrial Production dipping month on month, the impact of decrease in production of coal

11

has led to serious impact on the growth prospects. During the financial year 2011-12, there was a

loss to the tune of nine billion units due to shortage of coal. As per Central Electricity Authority,

India might face peak power shortage of 10% in FY13.

Another low in the history of Coal Industry and Coal India Ltd has been the Coalgate scam.

Government of India has been accused by CAG of allocating coal blocks in an inefficient

manner. While the report suggested that allocation of coal blocks should have been in an

efficient manner, nowhere it was mentioned that corruption was involved in the process.

However, it was also reported that this process led to a huge loss to exchequer.

Looking at this scenario, a number of suggestions need to be implemented to ensure a smooth

and efficient functioning. Coal India Ltd should focus on logistics and supply chain part of the

transportation of coal to the power stations. Also, the standard of mining should be improved for

the workers. Coal India is also very rich in cash reserves, which can be used towards expansion

plans of the company and investment towards exploration of new mines. Company does not

have any control on ‘policy paralysis’ but can improve the productions levels by focusing on the

basic production methods and logistics. Looking at the growth prospects of India and also our

country’s dependence on coal for power generation, these improvements need to be implemented

at company level for immediate results. Also, Coal India Ltd having a monopoly in the market,

these changes will ensure that growth in production of coal will see an upward direction.

12

Exhibits

Exhibit 1 : Subsidiaries of Coal India

1

Eastern Coalfields Limited (ECL),

Sanctoria, West Bengal

2

Bharat Coking Coal Limited (BCCL),

Dhanbad, Jharkhand

3

Central Coalfields Limited (CCL),

Ranchi, Jharkhand

4

South Eastern Coalfields Limited

(SECL), Bilaspur, Chattisgarh

5

Western Coalfields Limited (WCL),

Nagpur, Maharashtra

6

Northern Coalfields Limited (NCL),

Singrauli, Madhya Pradesh

7

Mahanadi Coalfields Limtied (MCL),

Sambalpur, Orissa

8

Coal India Africana Limitada,

Mozambique

Exhibit 2: Balance Sheet of Coal India Limited

Fiscal Year Ending Mar 31 2012 2012 2011 2010

ASSETS

Cash And Short Term Investments 592,279 460,176 390,782

Total Receivables, Net 210,588 156,191 47,584

Total Inventory 60,713 55,856 44,018

Prepaid expenses 2,634 1,917 56,968

Other current assets, total 7,540 9,043 3,896

13

Fiscal Year Ending Mar 31 2012 2012 2011 2010

Total current assets 873,754 683,183 543,248

Property, plant & equipment, net 145,296 132,106 142,461

Goodwill, net -- -- --

Intangibles, net 18,141 16,899 --

Long term investments 9,470 8,510 12,821

Note receivable - long term 10,865 9,217 --

Other long term assets -- -- --

Total assets 1,069,466 858,646 714,123

LIABILITIES

Accounts payable 8,290 6,455 7,725

Accrued expenses 4,751 4,799 35,670

Notes payable/short-term debt 0 326 0

Current portion long-term debt/capital

leases194 1,872 --

Other current liabilities, total 328,649 253,207 372,162

Total current liabilities 341,884 266,659 415,557

Total long term debt 13,333 13,338 19,631

Total debt 13,527 15,536 19,631

Deferred income tax -- -- 5,972

Minority interest 536 326 236

Other liabilities, total 309,183 245,182 14,774

14

Fiscal Year Ending Mar 31 2012 2012 2011 2010

Total liabilities 664,936 525,504 456,171

SHAREHOLDERS EQUITY

Common stock 63,164 63,164 63,164

Additional paid-in capital 123 89 104

Retained earnings (accumulated

deficit)340,312 268,587 193,425

Treasury stock – common -- -- --

Unrealized gain (loss) -- -- --

Other equity, total 932 1,303 1,260

Total equity 404,530 333,142 257,952

Total liabilities & shareholders'

equity1,069,466 858,646 714,123

Total common shares outstanding 6,316 6,316 6,316

Treasury shares - common primary

issue-- -- -

Exhibit 3: Income Statement of Coal India Limited

Fiscal Year Ending Mar 31 2012 2012 2011 2010

REVENUE AND GROSS PROFIT

Total revenue 699,523 551,014 515,849

OPERATING EXPENSES

Cost of revenue total 72,415 61,713 80,685

15

Fiscal Year Ending Mar 31 2012 2012 2011 2010

Selling, general and admin. expenses,

total101,350 86,281 66,155

Depreciation/amortization 19,692 17,654 13,295

Unusual expense(income) 36,812 26,100 30,539

Other operating expenses, total 2,785 3,202 17,236

Total operating expense 486,797 386,382 376,200

Operating income 212,727 164,632 139,649

Other, net -- -- --

INCOME TAXES, MINORITY INTEREST AND EXTRA ITEMS

Net income before taxes 212,727 164,632 139,649

Provision for income taxes 64,845 55,959 43,425

Net income after taxes 147,882 108,674 96,224

Minority interest -- -- --

Net income before extra. Items 147,882 108,674 96,224

Total extraordinary items (0.10) (0.10) 0

Net income 147,882 108,674 96,224

Inc.avail. to common excl. extra.

Items148,241 108,596 96,152

Inc.avail. to common incl. extra.

Items148,241 108,596 96,152

EPS RECONCILIATION

16

Fiscal Year Ending Mar 31 2012 2012 2011 2010

Basic/primary weighted average shares 6,316 6,316 6,316

Basic/primary eps excl. extra items 23 17 15

Basic/primary eps incl. extra items 23 17 15

Dilution adjustment -- -- --

Diluted weighted average shares 6,316 6,316 6,316

Diluted eps excl. extra items 23 17 15

Diluted eps incl. extra items 23 17 15

COMMON STOCK DIVIDENDS

DPS - common stock primary issue 10.00 3.90 3.50

Gross dividend - common stock 63,164 24,634 22,100

PRO FORMA INCOME

Pro forma net income -- -- --

Interest expense, supplemental 375 569 404

SUPPLEMENTAL INCOME

Depreciation, supplemental 17,872 15,608 13,823

Total special items 36,731 25,963 30,324

NORMALIZED INCOME

Normalized income before taxes 249,458 190,595 169,973

Effect of special items on income taxes 11,197 8,825 9,429

Income tax excluding impact of special

items76,041 64,784 52,854

17

Fiscal Year Ending Mar 31 2012 2012 2011 2010

Normalized income after tax 173,417 125,812 117,119

Normalized income avail. to common 173,775 125,734 117,046

Basic normalized EPS 28 20 19

Diluted normalized EPS 28 20 19

18

Exhibit 4: Coal India Limited Du-Pont Chart Analysis2011-12 2009 -10

Return on Net worth

41.22 22.15

Dividend per

Share

Net Operating

profit per share

10 3.50 0.66 0.71

Return on Capital Employed

43.29 22.92

Asset Turnover

Ratio Profit Margin

0.02 1.19 84.73 79.59

Fixed Asset TO Current Asset TO Debt Equity Ratio

1.17 1.19 0.34 0.31 0.06 0.09

Current Ratio Inventory TO

Earnings Retention

Ratio

2.41 3.22 26.29 18.58 22.50 29.63

Exhibit 5: Projected Coal Demand

19

539

69

32

91

Projected Coal Demand 2012 (in mil-lion tonnes)

Electricityiron and steelcementothers

1659

150

140

272

Projected Coal Demand 2031 (in mil-lion tonnes)

Electricityiron and steelcementothers

As per the data given above, India produces 6 % of coal overall but needs 8% for its

consumption which reflects the 2% of coal that is imported to fulfil the domestic requirement.

20

Exhibit 6: Projected Domestic Coal Production (in million tonnes)

Coal India Singareni Collieries

Captive Tata Steel Meghalaya Mines

0

100

200

300

400

500

600

700

2011-20122016-2017

21