Motilal Oswal is bullish on Coal India has recommended Buy rating on the stock with a target price of Rs 335 in its research report dated October 10, 2017.
Motilal Oswal's research report on Coal India
Coal India (COAL) announced an annual impact of INR56.7b on account of the wage hike after it signed the National Coal Wage Agreement- X on 10 th October 2017 for a period of five years , from 1 st July 2016 to 30 th June 2021. According to our calculations, the average hike of 22% is higher than our estimate of 18%. Thus, we are raising our estimate for the annual wage bill by INR20b to INR364b in FY18E, and by INR12.3b to INR362b in FY19E. This will impact EBITDA and PAT by 11% in FY18E and by 6% in FY19E.
We expect the stock to get re -rated because of the many levers that can drive upside to our estimates. Currently, there is shortage of coal, as power plants have destocked heavily. We are raising the valuation multiple from 7.5x to 8x FY19E EV/ EBITDA, and also increasing the target price to INR335 (from INR305), implying 17 % upside. The stock is trading attractively at 7.2xEV/EBITDA, 13.6x P / E and 5.5% dividend yield. Maintain Buy.
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