Edelweiss recommended hold rating on Coal India with a target price of Rs 275 in its research report dated October 10, 2017.
Edelweiss' research report on Coal India
We downgrade Coal India (CIL) to ‘HOLD’ as we see limited growth triggers as: 1) Higher than expected wage provisions will exert pressure on earnings; 2) CIL needs to take a price hike of 6% versus our estimate of 4% for EBITDA neutrality; and 3) Recent tailwinds likely to translate into estimated volume growth of 8% YoY each in both FY18 and FY19. Moreover, we estimate dividend yield of 4-6% over next 2 years. Factoring in the above, we trim our FY18/19E EBITDA by 19%/7%. On valuation front, our target price of INR285 has been achieved and at current levels the stock is trading expensive at 8.8x FY19E EBITDA and 15.1x FY19E EPS, which is at top-end of CIL’s own historical trading range. Our revised target price is INR275.
Our target price of INR285 has been achieved and we see limited upside hereon as even price hikes of 6% (if taken) would merely nullify the adverse impact on EBITDA due to higher than expected wage increase. We have lowered our dividend yield estimate from 8% to 4-6% now in light of constrained cash accretion. The stock trades at top end of its peers and its own historical trading range. Hence, we downgrade to ‘HOLD/SP’ with revised TP of INR275, implying an exit multiple of 14.5x FY19E EPS.
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