Rating Rationale
June 04, 2018 | Mumbai
Coal India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.2550 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Corporate Credit Rating  CCR AAA/Stable (Renewed & Reaffirmed)
Rs.150 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has renewed & reaffirmed its 'CCR AAA/Stable' corporate credit rating to Coal India Ltd (CIL), and reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the company's bank facilities and short-term debt.
 
The ratings continue to reflect the strategic role that CIL plays in helping India meet its energy requirement, its near-monopoly status in the country, healthy profitability, and strong financial risk profile. These strengths are partially offset by susceptibility to regulatory risks, socio-political factors, and constraints in the coal distribution and evacuation infrastructure, in the coal mining industry in India.

Key Rating Drivers & Detailed Description
Strengths
* Strategic importance in meeting India's energy requirement
Given India's abundant coal reserves and unavailability of other sustainable sources of fuel, coal continues to play a dominant role in meeting the country's energy requirement. CIL accounted for 83% of the domestic coal production in fiscal 2018, and 78% of its supplies were to the power sector. The company will continue to play a strategic role in meeting India's energy needs.
 
* Continued near-monopoly status
CIL possesses 48% of India's proven reserves in its command area and accounts for 83% of India's domestic coal production. While talk of reforms such as privatisation in the coal mining sector has gained traction, implementation will take some time, and CIL will retain its monopoly position over the medium term.
 
* Healthy profitability
Profitability has been healthy in the past decade because of favourable geological conditions and improving productivity in terms of output per man-shift through increased outsourcing and capital expenditure (capex). However, in fiscal 2018, operating margin declined to 12.5% (25.4% in fiscal 2016) due to one-time expenses related to higher provisioning for wage revision and grade slippages leading to higher cost of production. CIL's production grew 2% while despatches increased by 7% owing to higher demand, especially from power producers, in fiscal 2018. With application of coal cess from December 2017 and price hikes taken in January 2018, profitability should improve in fiscal 2019 and remain healthy over the medium term.
 
* Strong financial risk profile
Gearing was low at 0.02 time and robust liquidity of over Rs 30,000 crore as on March 31, 2018 (Rs 32,713 crore as on March 31, 2017). Net cash accrual was negative in fiscals 2018 and 2017 because of higher-than-usual dividend payout (including dividend tax) of over Rs 12,000 crore and Rs 15,000 crore, respectively, and share buyback (Rs 3650 crore) in October 2016. While this led to reduction in networth, absence of any significant debt (around Rs 1,000 crore in fiscal 2018 and Rs 566 crore in fiscal 2017) has kept the capital structure robust.
 
The company has capex plans of Rs 25,000 crore in fiscals 2019 to 2020 primarily to increase mining and coal washing capacity and improve its rail infrastructure. While it also plans capex to set up a solar power and thermal power plants, and invest in revival of fertiliser plants, these are in preliminary stage and no significant investment is expected over the medium term.
 
Despite the proposed capex, buyback of shares, and high dividend payout, financial risk profile and liquidity will remain strong over the medium term backed by strong capital structure, sizeable liquid surplus, and healthy cash flow. Larger-than-expected capex, adversely impacting cash position, will remain a key monitorable.
 
Weaknesses
* Influence of socio-political factors and regulatory risks on the coal mining industry
Despite improving productivity, CIL's coal output has been constrained by regulatory hurdles. Ramp-up of coal production is hampered by delays in obtaining environmental and forest approvals, especially in greenfield projects, and unavailability of adequate logistic infrastructure. Flexibility is also restricted by socio-political factors, which mandate development activities in coal mining areas, thereby impacting cost structure. The company plays an important role in ensuring the country's energy security, and hence, domestic coal has a discounted price compared to imported coal. Entry of private players under recently announced commercial mining will take time to start production. Thus, keeping CILs near-monopoly status and strategic importance to Government of India intact. Operational flexibility has improved in the past two years with environmental and forest clearances enabling faster implementation of stuck projects for coal evacuation. Any change in the regulatory regime or socio-political factors will impact the business.
 
* Constraints in coal distribution and evacuation infrastructure
Volume has been impacted in the past by lack of adequate rakes for transportation of coal and lack of last-mile connectivity in pitheads. Nonetheless, there has been progress in implementation of previously stuck projects, with better coordination among stakeholders. Consequently, a part of two critical rail links (Tori-Shivpur, Tori-Balumath) for transporting coal from CIL's mines has been recently commissioned while the entire section is expected to be completed within fiscal 2019. Further rail projects will be implemented over the next couple of years to ease evacuation constraints and increase the share of railways in transporting coal. Any delay in the completion of these links may impact production.
Outlook: Stable

CRISIL believes CIL will maintain its dominant market position in the domestic coal market over the medium term, driven by strong capital structure and surplus liquidity.  
 
Downside scenario
* Any material adverse impact of changes in India's coal policy
* Significant weakening of financial risk profile, particularly liquidity

About the Company

CIL was incorporated in 1973 as Coal Mines Authority Ltd after the nationalisation of the coal sector. A formal holding company in the form of Coal India Ltd was formed in November 1975. The company has eight wholly owned Indian subsidiaries: Bharat Coking Coal Ltd, Central Coalfield Ltd, Eastern Coalfields Ltd, Western Coalfield Ltd, Northern Coalfields Ltd, Mahanadi Coal Fields Ltd, South Eastern Coalfields Ltd, and Coal Mines Planning and Development Institute Ltd. It has a wholly owned subsidiary in Mozambique, Coal India Africana Limitada, to pursue coal mining opportunities in that country.
 
CIL was conferred Maharatna status by the Indian government in April 2011. The status provides operational and financial autonomy. Additionally, seven of its nine wholly owned subsidiaries have been accorded Miniratna status, leading to decentralisation of operations and decision making. In October 2010, the government divested 10% stake in CIL for Rs 15,200 crore through an initial public offering (IPO). After the IPO, CIL was listed on the domestic stock exchanges. Over the years, the government has divested through offer for sale, by way of placement of shares in Central Public Sector Exchange Traded Fund and buyback of shares through offer for sale. Government shareholding as on March 31, 2018, was 78.5%.
 
In fiscal 2018, CIL produced 56.7 crore tonne of coal against 55.4 crore tonne in the previous year. In fiscal 2018, CIL had profit after tax (PAT) of Rs 7,020 crore on revenue of Rs 85,863 crore.

Key Financial Indicators
As on/for the period ended March 31   2017 2016
Revenue Rs crore 78221 77750
PAT Rs crore 9266 14014
PAT margins % 11.8 18.0
Adjusted debt/adjusted networth Times 0.02 0.04
Interest coverage Times 567 1234

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Rating Assigned with Outlook
NA Cash Credit & Working Capital demand loan NA NA NA 250 CRISIL AAA/Stable
NA Letter of credit & Bank Guarantee^ NA NA NA 2290 CRISIL A1+
NA  Foreign Exchange Forward  NA NA NA 10 CRISIL A1+
NA Short-term debt NA NA 7-365 days 150 CRISIL A1+
^ Out of this Rs.1990 Crore is outside consortium non-fund based limits
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
CCR  0.00  CCR AAA/Stable      10-07-17  CCR AAA/Stable  25-11-16  CCR AAA  10-11-15  CCR AAA  CCR AAA 
            31-03-17  CCR AAA/Stable  31-08-16  CCR AAA       
Short Term Debt  ST  150.00  CRISIL A1+      10-07-17  CRISIL A1+  25-11-16  CRISIL A1+  10-11-15  CRISIL A1+  CRISIL A1+ 
            31-03-17  CRISIL A1+  31-08-16  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  260.00  CRISIL AAA/Stable/ CRISIL A1+      10-07-17  CRISIL AAA/Stable/ CRISIL A1+  25-11-16  CRISIL AAA/Stable/ CRISIL A1+  10-11-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
            31-03-17  CRISIL AAA/Stable/ CRISIL A1+  31-08-16  CRISIL AAA/Stable       
Non Fund-based Bank Facilities  LT/ST  2290.00  CRISIL A1+      10-07-17  CRISIL A1+  25-11-16  CRISIL A1+  10-11-15  CRISIL A1+  CRISIL A1+ 
            31-03-17  CRISIL A1+  31-08-16  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 250 CRISIL AAA/Stable Cash Credit & Working Capital demand loan 250 CRISIL AAA/Stable
Foreign Exchange Forward 10 CRISIL A1+ Foreign Exchange Forward 10 CRISIL A1+
Letter of credit & Bank Guarantee^ 2290 CRISIL A1+ Letter of credit & Bank Guarantee^ 2290 CRISIL A1+
Total 2550 -- Total 2550 --
^ Out of this Rs.1990 Crore is outside consortium non-fund based limits
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Mining Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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