Coal India, NTPC, and oil marketing companies, among others, are on investors’ radar today.
CLSA has maintained a sell call on the stock with a lower target price of Rs 265 against Rs 285. The research firm believes that the downgrade of coal grade is equivalent to 10-12 percent price drop in most cases. It is possible that a partial impact of the downgrades has already come through.
Assuming half impact of the downgrades are yet to arrive, CLSA cut FY18-19 earnings per share (EPS) by 4-7 percent. Analysts at the firm highlighted the coal quality watchdog’s action to downgrade coal grade of 177 of Coal India’s mines.
Deutsche Bank, meanwhile, has a hold call on the stock with a target price of Rs 297. While it sees a possible impact of the coal downgrade on its FY18 standalone earnings by 20-25 percent, actual impact may be lower due to possible FSA price hike in this fiscal. In fact, an over 9 percent hike in FSA could offset adverse impact from the grade decline, it added. The dividend yield of over 7 percent should provide downside support, it added.
Deutsche Bank has a buy call on the stock with a lower target price of Rs 475 and has also cut FY17/18/19 earnings by 6, 10, and 11 percent, respectively. The firm foresees strain on wholesales to continue in the first quarter of this fiscal. The demand environment continues to remain subdued, while rural growth is yet to return post demonetisation. The brokerage house sees potential for P/E rerating in medium term even though the short-term is cloudy.
Deutsche Bank has reiterated its buy call on the stock with a target price of Rs 195. It sees a good buying opportunity in the weakness around offer for sale (OFS) by the government. The research firm expects NTPC to increase commissioning to 6-8 GW per annum over the next three years. Along with that, it sees an expansion of 300 basis points in return on equity (RoE) to 14.5 percent by FY19. Key risks to the stock include slower than expected execution rate as well as old plant shutdowns on environment norms.
Oil & Gas
CLSA has maintained a sell call on BPCL and HPCL. The research firm believes that the dynamic pricing of retail fuel is a positive step and reduces risk of returning to subsidy regime, but sees challenges for oil marketing companies (OMCs) to adopt it. Furthermore, it sees objections from petrol pump dealers on higher volatility in profits.
For OMCs, recovery in Brent and competition limits the chance of a rise in marketing margins, CLSA added. IOC, BPCL and HPCL could lose 4-9 percent of 2018 earnings per share.
Macquarie has initiated coverage on the stock with an outperform rating and a target of Rs 550. It forecasts expansion in benchmark refining margins to an average of USD 7 per barrel. It also finds the stock relatively inexpensive at 6.7 times one year forward EV-EBITDA. The one-year bull case is Rs 630 per share if benchmark Singapore GRM expands to USD 8 per barrel, but may see 10 percent downside if the same falls to USD 5 per barrel.
Macquarie has initiated coverage with an outperform rating and a target of Rs 860, implying 25 percent potential upside. Expansion in Kochi as well as benchmark GRMs could support earnings, it feels. Furthermore, the model company’s earnings will show 16 percent CAGR over the next three years. It has a one-year bull case of Rs 1,030 with 45 percent upside of Singapore GRMs expand to USD 8 per barrel, while a 15 percent downside is possible if Singapore GRM falls to USD 5 per barrel.