Flashnote

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Global Research

Nat Resources & Energy Metals & Mining

Equity India

Coal India Limited (COAL IN)

OW: Improving operational performance
We expect net profit growth of 6% yoy in Q1FY13, despite wage hike provision; sales to be up 17% yoy Pick up in volumes in FY13-14e and margin expansion to support strong EPS growth of 17% CAGR Maintain OW and INR400 target price; strong operational performance in 2Q to act as a positive catalyst
Volumes to pick up: We expect Coal India (CIL) to report a volume increase of c25MT pa over the next two years (c6% CAGR) due to stronger demand and increased production after being flat in the past two years. We expect the increase in volumes to come mainly from mines of three subsidiaries (MCL, CCL and SECL) which should contribute about 75% of the production increase over the next 5-10 years. Volume growth in Apr-May 2012 has been encouraging at 6.3%, but 2Q will be crucial (last year impacted by heavy rains). Import prices cooling off but need to go to USD25-30/ton level to impact CIL, which is unlikely, in our view: International thermal coal prices have fallen by 13-28% in the last three months since February 2012 to USD88-96/ton. This does not impact CIL as it sells c90% of its coal at a significant discount of cUSD40/ton (adjusted for low quality). Coal India likely to meet c60% of the new power project needs from domestic source with little negative impact on existing sales: The recent government directive of committing to meet at least 65% of customer requirements (against 50% earlier) as well as higher penalty (versus negligible earlier) is not likely to affect CIL earnings based on our analysis (see table 7). In our view, CIL can meet its commitment (c60-65%) through increased production, diversion of some e-auction sales and re-distribution from existing contracts. NTPC, the main customer, has agreed the proposal, while it is still to be agreed by CILs board (key disagreement are the penalties). We look for further details post the board meeting on 10 July. 1QFY13 preview: We expect CIL to report strong revenue growth of 17% yoy in 1Q driven by volumes (up 6% yoy) and price (up 11% yoy to INR1,510 per ton, reflecting the impact of the new pricing system as well as e-auction sales). The provision for wage cost increases (INR18.5bn in Q1) is likely to lead to net profit growth of 6% to INR43.8bn. Maintain OW and target price of INR400: We marginally change our estimates; EBITDA is unchanged for FY13-14, while net profit is up by 2-4% due to higher other income. We value CIL using a combination of DCF and earnings multiples. Our unchanged TP implies a PE of 12.6x and EV/EBITDA of 6.7x on FY14e earnings. Downside risks include lower-than-expected offtake due to logistics constraints or a decline in production, and the impact of wage increases or implementation of the MMDR bill not being passed onto customers. Catalysts include better operational performance in 2Q, higher realisation over next 1-2 quarters on back of new pricing system.
To vote for HSBC in Asiamoney 2012 www.asiamoney.com/survey/takesurvey/en/BP12/ Click here for more information on HSBC's India Research Team

Overweight
Target price (INR) 400.00 Share price (INR) 353.75 Forecast dividend yield (%) 3.1 Potential return (%) 16.2
Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield Performance Absolute (%) Relative^ (%) Index^ RIC Bloomberg Market cap (USDm) Market cap (INRm) Enterprise value (INRm) Free float (%)
Note: (V) = volatile (please see disclosure appendix)

1M 10.5 1.2

3M 3.6 3.7

12M -10.5 -3.5

BOMBAY SE IDX COAL.BO COAL IN 41,013 2,234,414 1659819 10

9 July 2012
Arun Kumar Singh* Senior Analyst, Indian Power Utilities HSBC Securities and Capital Markets (India) Private Limited +9122 22681778 arun4kumar@hsbc.co.in Jigar Mistry*, CFA Analyst, Indian Metals and Mining HSBC Securities and Capital Markets (India) Private Limited +9122 22681079 jigarmistry@hsbc.co.in Murtuza Zakiuddin* Associate Bangalore View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of HSBC Securities and Capital report: Markets (India) Private Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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Financials & valuation

Financial statements Year to 03/2011a 03/2012e 03/2013e 03/2014e Key forecast drivers Year to Production (MT) Sales (MT) ASP (INR/t) 03/2011a 431 424 1,178 03/2012e 436 433 1,435 03/2013e 458 460 1,523 03/2014e 481 484 1,562

Profit & loss summary (INRm) Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit Cash flow summary (INRm) Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity 128,225 -24,750 -22,566 -33,611 -73,178 77,790 235,380 -33,000 -31,000 -86,183 -123,197 163,085 198,460 -47,000 -45,000 -94,801 -58,659 115,636 257,115 -31,305 -29,305 -103,419 -124,391 186,468 520,537 152,992 -16,729 136,263 28,869 164,632 165,234 -55,959 108,673 112,427 646,765 178,989 -19,402 159,587 50,714 212,659 211,802 -64,772 147,887 147,030 729,859 233,204 -21,186 212,018 48,400 261,919 261,919 -81,516 180,403 180,403 786,282 263,286 -23,143 240,143 49,897 291,540 291,540 -90,811 200,729 200,729

Valuation data Year to EV/sales EV/EBITDA EV/IC PE* P/Book value FCF yield (%) Dividend yield (%) 03/2011a 3.4 11.6 19.9 6.7 3.5 1.1 03/2012e 2.6 9.3 15.2 5.7 7.3 2.8 03/2013e 2.2 6.9 12.4 4.7 5.2 3.1 03/2014e 1.9 5.6 11.1 3.9 8.4 3.4

Note: * = Based on HSBC EPS (fully diluted)

Price relative
515 515 465 415 365 315 265 2011 2012 2013
Coal India Limited Source: HSBC Rel to BOMBAY SE SENSITIVE INDEX

Balance sheet summary (INRm) Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders funds Invested capital 0 150,610 643,960 458,623 813,973 408,178 15,536 -443,087 333,172 -72,231 0 164,208 799,634 581,820 984,245 494,746 15,536 -566,284 394,876 -112,724 0 190,023 859,441 640,478 1,067,867 517,767 15,536 -624,943 480,478 -108,781 0 198,184 993,089 764,869 1,207,676 560,266 15,536 -749,333 577,787 -133,862

465 415 365 315 265 2010

Ratio, growth and per share analysis Year to Y-o-y % change Revenue EBITDA Operating profit PBT HSBC EPS Ratios (%) Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt Per share data (INR) EPS reported (fully diluted) HSBC EPS (fully diluted) DPS Book value 17.21 17.80 3.90 52.75 23.41 23.28 10.00 62.52 28.56 28.56 11.00 76.07 31.78 31.78 12.00 91.47 -8.4 -145.7 38.0 14.3 29.4 26.2 -132.9 -2.9 -7.0 -120.0 40.4 16.5 27.7 24.7 -143.3 -3.2 -6.6 -131.9 41.2 17.6 32.0 29.0 -130.0 -2.7 -6.5 -136.3 37.9 17.7 33.5 30.5 -129.6 -2.8 10.8 17.0 16.0 14.1 14.4 24.2 17.0 17.1 29.2 30.8 12.8 30.3 32.9 23.2 22.7 7.7 12.9 13.3 11.3 11.3 03/2011a 03/2012e 03/2013e 03/2014e
Note: price at close of 04 Jul 2012

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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Demand outstrips supply; fall in imported coal prices does not impact Coal India
We expect coal demand in India to register a 9% CAGR over FY13-17e to 1.0bn tons by FY17e, led by demand from coal-based power plants which is likely to increase from 108GW to 176GW by FY17e (10% CAGR) as well as an increase in demand from other sectors (captive, steel and cement). However, we do not expect supply growth to keep pace, rising only c7% over FY13-17, driven by capacity expansion by CIL and captive mining. Consequently, we expect the coal deficit to rise to c290mt by FY17e (from c133mt in FY12e) which will have to be met from rising imports (about 221MT in FY17e from 118MT in FY12, growing at CAGR of 13%). Exhibit 1 gives historical demand and supply and our estimates for coal in India.
1. Indias coal demand and supply model Demand to far outstrip domestic supply resulting in increasingly reliance on imports In MT Demand Power (Utilities) Captive Power Steel incl Sponge Cement Others Total (a) Supply CIL SCCL Captive coal mines Others (captive) Total (b) Shortfall in domestic supply (a-b) Equivalent imports Imports (c) Imports to meet shortfall - Coking coal - Non-coking coal FY07 FY08 FY09 FY10 FY11e FY12e FY13e FY14e FY15e FY16e FY17e Incremental CAGR (FY13-17e) (FY13-17e) 380 38 63 21 93 595 431 50 35 14 531 64 396 40 65 21 95 617 431 51 35 16 533 84 446 41 69 22 97 675 436 52 37 16 542 133 103 43 18 25 50 22 28 59 21 38 68 23 44 112 29 83 118 29 89 517 42 73 25 99 755 458 53 43 17 570 185 141 141 33 109 590 43 80 27 100 841 481 54 59 17 610 230 176 176 39 137 662 45 86 30 102 925 505 55 79 17 656 269 205 205 46 159 721 46 88 32 105 991 532 57 95 18 701 291 221 221 48 173 753 47 91 35 107 1,033 560 58 108 18 743 290 221 221 51 170 307 7 22 12 10 358 124 5 70 2 202 156 118 103 22 81 11% 3% 6% 9% 2% 9% 5% 2% 24% 2% 7% 17% 16% 13% 12% 14%

308 28 51 20 57 464 361 38 18 15 431 33

332 29 58 21 63 504 379 41 21 16 457 47

363 34 57 19 77 550 404 45 30 14 492 58

Note: Actual consumption (supply + imports) is higher than the demand projections in the past due to lot of unorganised sector consuming coal and not entirely captured in the demand estimates by the Ministry of Coal. Our demand projections for FY13-17 is also limited by data reported particularly for category Others which includes many sectors for which information is not available. Source: MOC, CEA, CIL, SCCL, HSBC estimates

International thermal coal prices have fallen significantly in the last 2-3 months since February 2012 with the Australian New Castle Index down by 28% to USD88.4/ton at end June 2012 from USD123/ton in February 2012, while the Indonesian Reference Price Index HBA is at USD96.6/ton (down by 13% from USD112/ton in February 2012), which are the two major importing destinations for India. This does not impact CIL as the contracted prices of CIL are far below international prices (INR1,310/ton or USD23/ton) which after adjusting for low quality of coal comes to cUSD40/ton. Thus the international coal price needs to come down to USD25-30/ton level, as it also involves transportation cost of about USD10-15/ton at present, to impact CILs pricing which is very unlikely, in our view.

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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2. International thermal coal prices have been cooling since March 2012, down 13-28% since February 2012

180 150 120 90 60 30 0 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12
12% 123 113 6% 0% -6% -12% 1Q13e 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 3Q12 4Q12 2Q12

Australian thermal coal (Newcastle) - USD/ton

Indonesian thermal coal HBA - USD/ton

Source: Bloomberg

1Q operational performance is likely to be strong, 2Q will be crucial

Production and sales offtake grew strongly in the first two months of FY13 at 5.6% and 6.3% yoy respectively. This is compared to flat production in the past two years, and a marginal increase in sales offtake (up 2.7% pa). We expect this to continue and the company to report a volume increase of c25MT pa over the next two years (c6% CAGR) due to stronger demand and increased production. However the actual performance in 2Q is likely to be a catalyst for the stock, in our view, which was last year impacted by heavy rains. For the full year, CIL has a target for production of 464MT and 470MT for offtake, while we assume a lower offtake of 460MT in FY13.

3. Production growth picked up in Q4, continued in April and May 12 at 5.6% yoy, to result in better Q1 (1Qe-5.5% yoy)
160 120 80 40 0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13e 111 96 88 95 91 135 114 96 80 132 115 102 145 12% 6% 0% -6% -12%

4. Resulting in improved offtake as well Offtake grew 6.3% yoy in April and May 12 (1Qe-6% yoy)
160 111 114 106 110 107 114 101 120 100 98 94 94 80 40 0

Production (MT)

Growth y/y

Offtake (MT)
Source: Company data

Growth y/y

Source: Company data

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5. Pricing under e-auction and increase in contracted price in Q4 due to new pricing system was a key driver for increase in average realisation for CIL (INR/ton) in FY12; this is likely to continue in FY13-14
3,500 3,000 2,500 2,000 1,500 1,000 883 796 1,347 1,084 975 1,583 1,183 1,049 1,846 1,441 1,235 2,599 1,523 1,311 2,888 1,392 1,172 2,852 1,581 1,298 2,854 4Q12 1,510 1,310 2,850 1Q13 e 976 844 1,481 1,562 1,351 2,984 FY1 4e 500 0

FY0 8

FY09

FY10

FY11 CIL avg

FY12

FY13e

3Q 12

Contracted coal

E-A uction coal

Source: Company data, HSBC estimates

6. E-auction sales share to fall to 9% by FY14e (from c12% in FY12e) as CIL diverts some of it to meet new contract commitments
in MT 100% 95% 8% 90% 85% 88% 80% 75% FY08 FY09 FY10 FY11 Contracted coal FY12 FY13e FY14e 3Q12 4Q12 1Q13e E-Auction coal Washed coal 84% 85% 85% 84% 86% 86% 85% 85% 87% 12% 11% 11% 12% 10% 9% 10% 12% 10% 368 4% 395 4% 410 4% 424 4% 433 4% 460 4% 484 5% 110 5% 123 3% 113 4%

Source: Company data, HSBC estimates

Minimal negative impact from new FSA for CIL

Earlier this year, the government directed CIL to sign long-term contracts (FSA) with power companies to supply at least 80% of their requirements. Since CIL could not meet the obligations, it agreed to sign contracts with negligible penalties (for non-meeting of commitments see also our note Indian power and coal - New supply deal wont hurt Coal India, 3 May 2012). Many of the power customers including NTPC (largest customer) did not agree to sign the agreements and approached the government, which has again directed CIL to commit at least 65% of the requirement of new plants (versus a 50% trigger level earlier, despite committing 80%), and also increasing the penalties for short supply (20-40% from 0.01% earlier). While this is still to be agreed by CIL, NTPC has already agreed to the proposal. Assuming CIL agrees to the arrangement and signs the FSA for the power plants having long-term power sale contracts, our analysis suggest that CIL will likely meet c60% of the commitments in next 3-4 years, while for the

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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balance it would push for imports (cost borne by the customers) with little impact on its sales. This is possible through increased production, diversion of some e-auction sales (already factored by us in our estimates) and re-distribution from existing contracts. However the re-distribution of coal from existing customers will largely impact NTPC, which is the largest customer having existing FSA of c112MT. The requirement from new projects to be commissioned up to FY15 (since FY10) is expected to be about 61MT, while CIL could commit only 40MT under the new FSA.
7. Coal Indias likely FSA commitments for power capacity commissioned up to March 2015 in MT FY13e FY14e FY15e FY16e FY17e

Coal requirement of old power plants commissioned up to FY09 Coal requirement of new power plants having long term power sale arrangements (PPA) Total requirement Minimum obligation/commitment of CIL @ 90% of requirement for the old plants and 65% for the new plants respectively under the FSA Likely commitment by CIL to the power sector (based on HSBC sales forecasts of CIL) % met for new capacity Gap left likely to be filled by imports with extra costs being passed on to the power utilities
CIL likely domestic supply sources Actual supply to the power sector in FY12 Diversion from E-Auction 90% of Incremental sales dispatched to power sector Total
Source: HSBC estimates

305 112 417 347 347 65% 0

305 153 458 374 368 61% 6

305 186 491 395 387 60% 9

305 206 511 408 404 63% 4

305 206 511 408 422 72% -14

312 10 25 347

312 10 46 368

312 10 65 387

312 10 82 404

312 10 100 422

1QFY13 preview
We expect CIL to report strong revenue growth of 17% yoy in 1Q driven by volumes (up 6% yoy) and price (up 11% yoy to INR1,510 per ton), reflecting the impact of the new pricing system as well as increased pricing under e-auction sales. The provision for wage cost increases (INR18.5bn in Q1) is likely to lead to a moderation in net profit growth of 6% to INR43.8bn.
8. Coal India consolidated quarterly earnings summary INRm 1QFY13e yoy% 1QFY12 2QFY12 3QFY12 4QFY12

Production (MT) Offtake (MT) Realisation (INR/ton) Sales* EBITDA* Margin % Other income # Net profit (adjusted) Net profit (reported)

101.6 112.6 1,510 176,186 56,344 32.0% 11,925 43,833

5.5% 6.0% 10.7% 17.3% 5.4% (361) 15.0% 6.1%

96.3 106.3 1,365 150,210 53,459 35.6% 10,369 41,308 41,439

80.3 93.7 1,403 136,214 29,552 21.7% 13,209 25,766 25,931

114.6 110.3 1,392 159,019 51,000 32.1% 13,033 40,325 40,378

144.6 122.8 1,581 201,343 45,008 22.4% 16,127 39,626 40,134

Note: *HSBC reclassifies Sales and EBITDA to include income from recovery of transportation and loading charges from customers which COAL reports as other income. This is probably not done by consensus. #Other income excludes income form recovery of transportation and loading charges etc classified under Sales by HSBC Source: Company data, HSBC estimates

Minor changes to EBITDA estimates for FY13-14

We tweak our estimates to reflect FY12 results, where the contracted pricing was higher driven by new pricing system while costs were also higher (employee and other operational costs) negating the impact. Our EBITDA changes are minimal for FY13-14, with only minor increases of 2-4% in our net profit due to higher other income.

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9. Coal India consolidated earnings change summary INRm __________ New ___________ __________ Old ___________ ________ Diff__________ FY12e FY13e FY14e FY12e FY13e FY14e FY12e FY13e FY14e

Production (MT) Off take (MT) Average selling price (INR/ton) Revenue EBITDA Margin % PBT Tax % tax rate Net profit EPS (INR)
Source: HSBC estimates

436 433 1,435 646,765 178,989 27.7% 211,802 64,772 30.6% 147,030 23.3

458 460 1,523 729,859 233,204 32.0% 261,919 81,516 31.1% 180,403 28.6

481 484 1,562 786,282 263,286 33.5% 291,540 90,811 31.1% 200,729 31.8

436 433 1,386 624,228 187,869 30.1% 215,498 68,697 31.9% 146,801 23.2

458 460 1,462 699,922 231,270 33.0% 254,303 81,169 31.9% 173,134 27.4

481 0.0% 483 0.0% 1,502 3.6% 755,110 3.6% 262,810 -4.7% 34.8% (242) 290,076 -1.7% 92,671 -5.7% 31.9% (130) 197,405 0.2% 31.3 0.2%

0.0% 0.1% 4.2% 4.3% 0.8% (109) 3.0% 0.4% (80) 4.2% 4.2%

0.0% 0.1% 4.0% 4.1% 0.2% (132) 0.5% -2.0% (80) 1.7% 1.7%

Our FY13-14 net profit estimates are 7-8% ahead of consensus for FY13-14 which we believe is largely due to our forecast of a price hike in FY13 (c5% on contracted sales) , and better expectations for prices under e-auctions, resulting in higher margins.
10. Coal India consolidated HSBC earnings versus consensus INRm _________ HSBC___________ FY13e FY14e _______ Consensus ________ FY13e FY14e ________Diff ________ FY13e FY14e

Revenue* EBITDA* Margin % PBT Net profit EPS (INR)

704,338 207,683 29.5% 261,919 180,403 28.6

758,789 235,793 31.1% 291,540 200,729 31.8

687,996 200,498 29.1% 246,482 166,825 26.4

746,859 225,390 30.2% 273,932 187,435 29.5

2% 4% 34 6% 8% 8%

2% 5% 90 6% 7% 8%

*Note: HSBC Revenue and EBITDA excludes income from transportation and loading charges in order to compare with consensus Source: HSBC estimates, Bloomberg for consensus as at 2 July 2012

Valuation and risks

Reiterate Overweight rating; target price unchanged at INR400
We value CIL based on a combination of DCF and earnings multiple-based valuations (Exhibits 8-8C) For our DCF, we discount the cash flows assuming an unchanged WACC of 11.3% (cost of equity of 11.8%, cost of debt of 7.5%, and beta of 0.95) to arrive at a value of INR424/share(from INR425). For our multiples-based valuations, we retain our target PE of 13.0x and target EV/EBITDA of 6.5x for CIL, a premium of c15% to the Asian coal companies peer group multiples (11.3x CY13e PE and 5.6x CY13e EV/EBITDA) given the better return profile and earnings stability. Accordingly, our valuation based on a target PE of 13x is INR413/share (from INR406) and on 6.5x EV/EBITDA is INR336/share (from INR334). Our target price for CIL is INR400 based on a weighted average of DCF, PE and EV/EBITDA, to which we assign weights of 50%, 25% and 25%, respectively. Our target price implies a 12.6x FY14e PE (versus the current 12.1x FY13e PE) and an EV/EBITDA of 6.7x on FY14e EBITDA (versus the current 6.7x FY13e). Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below the hurdle rate for Indian stocks of 11%. Our target price implies a potential return of 16.2%

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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(including dividend yield of 3.1%), which is above the Neutral band; therefore, we rate CIL Overweight. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.
11. CIL Calculation of 12-month target price Method Weight INR/Share

DCF PE EV/EBITDA Target price (rounded)

Source: HSBC estimates

0.50 0.25 0.25

424 413 336 400

11A. CIL DCF summary table Particulars Enterprise value Less: Gross Debt Add: Cash & Bank excluding OBR provision Add: Investments Less: Minorities Equity value
Source: HSBC estimates, OBR= Overburden Removal

INRm 2,267,234 15,536 422,892 6,637 326 2,680,901

INR/Share

359 2 67 1 0 424

11B. CIL PE-based valuation INR

PE multiple (x) EPS Mar 2014e Value per share

Source: HSBC estimates

13.0 31.8 413

11C. CIL EV/EBITDA-based valuation INRm EV/EBITDA multiple (x) EBITDA Mar 2014e Enterprise value Less: Gross Debt Add: Cash & bank excluding OBR provision Add: Investments Less: Minorities Equity value
Source: HSBC estimates, OBR = Overburden Removal

INR/Share

6.5 263,286 1,711,362 15,536 422,892 6,637 326 2,125,030

271 2 67 1 0 336

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Key downside risks to our rating and target price include: 1) lower-than-expected offtake because of logistics constraints or a decline in production; 2) wage cost hikes that the company is unable to pass on to customers; and 3) implementation of the Mines and Minerals (Development and Regulation) Bill in its current form, with CIL unable to pass on the additional burden to consumers. According to management, the negative impact of the MMDR bill could be INR20bn-22bn (probably after reducing the existing social overheads), which is equivalent to c3% of FY13e sales. This compares to our forecast of INR57bn (c8.0% of FY13e sales).

12. COAL Regional and global peer valuation summary sheet Company Coal India* China Shenhua China Coal Energy Yanzhou Coal Fushan Intl Hidili Industry Chinese Coal A shares Datong Coal Henan Shen Huo I Kailuan Clean Coal Pingdingshan Tianan Shanxi Guoyang Shanxi Lanhua Sci-Tech Shanxi Lu-An envr I Shanxi Xishan Coal Regional coal companies Banpu PCL Bumi Aneka Tambang TB Bukit Asam Straits Asia Resources Asian & Regional peers weighted US coal companies Alpha Natural Peabody Energy Arch Coal Inc CONSOL Energy Total Average weighted Ticker COAL IN 1088 HK 1898 HK 1171 HK 639 HK 1393 HK Country India China China China China China Rec OW NR NR NR NR NR Mcap _____ EV/EBITDA _____ (USDm) CY12e CY13e CY14e 40,343 69,244 14,478 11,910 1,360 570 6.8 5.8 6.2 7.7 1.2 6.7 5.5 5.3 5.2 7.1 1.3 5.8 4.7 4.9 4.8 7.1 1.4 5.3 ________ PE _________ CY12e CY13e CY14e 12.3 11.0 10.7 11.4 4.9 6.4 11.0 10.0 9.4 10.9 5.1 5.6 10.3 9.4 9.1 12.1 5.4 4.5 ________ PB _________ CY12e CY13e CY14e 4.6 2.1 1.0 1.2 0.5 0.5 3.8 1.8 0.9 1.1 0.5 0.5 3.2 1.6 0.8 1.1 0.5 0.5

601001 CH 000933 CH 600997 CH 601666 CH 600348 CH 600123 CH 601699 CH 000983 CH BANPU TB BUM IIJ ANTM IJ PTBA IJ SAR SP

China China China China China China China China Thailand Indonesia Indonesia Indonesia Singapore

NR NR NR NR NR NR NR NR NR NR NR NR NR

2,864 2,428 2,041 3,746 5,826 3,222 7,523 7,723 4,015 2,568 1,382 3,732 1,299

4.1 6.1 7.8 6.3 6.7 7.1 8.0 6.8 5.1 4.3 4.7 5.9 5.1 6.5 4.4 5.8 8.2 7.0 6.5

3.3 5.2 8.1 5.4 6.2 5.7 6.8 6.2 4.8 3.9 4.5 5.3 3.8 5.7 4.1 4.9 6.7 6.1 5.7

3.3 4.3 7.4 5.0 6.3 4.9 5.7 5.1 4.4 3.3 4.6 4.4 3.1 5.3 3.6 4.5 5.6 5.2 5.2

16.4 12.8 15.4 13.7 14.5 11.3 13.9 16.3 8.4 6.5 8.2 9.5 8.2 12.7 na 8.8 na 16.4 12.5

15.4 10.4 14.7 12.5 12.8 9.2 11.9 15.1 7.7 5.0 8.2 8.7 5.8 11.2 na 6.8 87.5 12.5 11.6

13.5 8.3 15.5 11.3 11.7 8.1 10.8 12.9 6.8 4.0 9.5 7.4 4.5 10.3 na 6.2 17.0 10.5 10.1

1.5 2.2 1.7 1.8 2.9 2.1 2.8 2.8 1.5 1.6 1.1 3.5 1.9 2.2 0.3 1.2 0.4 1.8 2.1

1.5 1.8 1.6 1.5 2.2 1.7 2.3 2.5 1.3 1.3 1.0 2.9 1.6 1.9 0.3 1.0 0.4 1.6 1.8

1.3 1.4 1.5 1.4 na 1.4 1.8 2.0 1.1 1.2 1.0 2.5 1.4 1.5 0.3 0.9 0.4 1.4 1.2

ANR US BTU US ACI US CNX US

USA USA USA USA

NR NR NR NR

1,919 6,679 1,462 6,881

*Note: For Coal India, CY12e represents financial year ended 31 March 2013 and so on Source: Thomson Reuters for non-rated stocks, HSBC estimates for rated stocks; priced at close of 2 July 2012

Coal India Limited (COAL IN) Metals & Mining 9 July 2012

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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Arun Singh and Jigar Mistry

Important disclosures
Stock ratings and basis for financial analysis

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings

HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 05 July 2012, the distribution of all ratings published is as follows: Overweight (Buy) 50% (26% of these provided with Investment Banking Services) Neutral (Hold) Underweight (Sell) 38% 12% (26% of these provided with Investment Banking Services) (17% of these provided with Investment Banking Services)

Share price and rating changes for long-term investment opportunities

Coal India Limited (COAL.BO) Share Price performance INR Vs HSBC rating history Recommendation & price target history From To Date

442 392 342 292 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

N/A Neutral (V) Overweight (V) Target Price Price 1 Price 2 Price 3 Price 4 Price 5 Price 6
Source: HSBC

Neutral (V) Overweight (V) Overweight Value 425.00 472.00 469.00 415.00 380.00 400.00

21 June 2011 16 August 2011 29 November 2011 Date 21 June 2011 16 August 2011 10 October 2011 29 November 2011 21 February 2012 01 May 2012

Source: HSBC

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HSBC & Analyst disclosures

None of the below disclosures applies to any of the stocks featured in this report. 1 2 3 4 5 6 7 8 9 10 11 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. As of 31 May 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company. As of 31 May 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. As of 31 May 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking-securities related services. As of 31 May 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. A covering analyst/s has received compensation from this company in the past 12 months. A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. * HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures
1 2 3

This report is dated as at 9 July 2012. All market data included in this report are dated as at close 04 July 2012, unless otherwise indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer
* Legal entities as at 12 June 2012 Issuer of report UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation HSBC Securities and Capital Markets Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, (India) Private Limited Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Dsseldorf; 000 Registered Office HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; 52/60 Mahatma Gandhi Road JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Fort, Mumbai 400 001, India Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Telephone: +91 22 2267 4921 Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Fax: +91 22 2263 1983 Securities (South Africa) (Pty) Ltd, Johannesburg; GR HSBC Securities SA, Athens; HSBC Bank plc, Website: www.research.hsbc.com London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC Mxico, SA, Institucin de Banca Mltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Mltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR This document has been issued by HSBC Securities and Capital Markets (India) Private Limited ("HSBC") for the information of its customers only. 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