Buy Coal India; target of Rs 346: A C Choksi

“Coal India is a state owned company that came into existence in November 1975 as a holding company with the government taking over private coal mines. The Company was originally incorporated as a private limited company with the name of ‘Coal Mines Authority Limited’ on June 14, 1973. Subsequently on October 21, 1975, the name of the Company was changed to Coal India Limited. The company is the largest coal producer in theworld. It produces around 81.1% of India's overall coal production. It commands nearly 74% of Indian coal market. In India where approximately 52% of primary commercial energy is coal dependent, CIL alone meets to the tune of 40% of primary commercial energy requirement. It feeds 82 out of 86 coal based thermal power plants in India CIL operates 471 mines in 21 major coal fields across 8 states. Out of which 273 are underground mines, 163 open cast mines&35 mixed mines.”

“CIL produces non-coking coal and coking coal of various grades for diverse applications. The production in FY 11was 431 MT. Coal India Limited has signed aMoUwith Ministry of Coal on 31st March, 2011 - for its key performance areas for FY 12. As per the MoU, CIL's targeted production and coal off-take have been fixed at 452MT&454MTrespectively for attaining an 'Excellent' rating. CIL has signed a MoU with The Shipping Corporation of India Limited in December 2010 for promoting a Joint Venture Company (JVC), in order to create end-to-end logistic solution from load port to consuming end. CIL also fully owns a mining company in Mozambique - Coal India Africana Limitada”  

“Total raw coal production stood at 431.32 MT. It has grown at a CAGR of 4.7% over the previous 5years.Production growthwas flat for fiscal 11(increase of 0.01%).Comany has set itself a target of 452MTforFY12.We expect Coal India to produce 443.65MTforFY12E & 462.64 MT for FY 13 E. This translates to a y-o-y growth of 2.9% & 4.3% for the respective years; a 2 yearCAGRof 3.6%. Average realizations increased at a CAGR of 6.1%. The average rise has been more in recent times - at ~10.3% levels for the previous three years.We expect the average realizations to be at 1,375 (growth of 10.9%) and 1,470 (growth of 6.9%) for FY 12 E & FY 13 E respectively. Sales value has grown at a CAGR of 11.3% over the past 5 years. We expect it to grow at 17.5% forFY12E&11.7% forFY13 E.”

“We have employed a weighted method using three valuation metrics for valuing Coal India. We have computed the fair value of the company based on Discounted Cash Flow Method (DCF), Price to Earnings method (PE) & Enterprise Value upon EBITDA Method (EV/EBITDA). We have assigned weights of 45%, 30% & 25% to each of the methods respectively to arrive at the target price of Coal India. Coal India is currently trading at 8.3 times(x) and 7.0 times(x) EV upon FY 12 E & FY 13 E forward EBITDA respectively. It is trading at a Forward P/E of 13.4 & 11.4 times(x) for the same respective periods. It also comes with a dividend yield of 1.3% for FY 11 and is expected to have a yield of 1.4%FY13Eon a conservative basis,” says A C Choksi research report.

Public holding more than 90% in Indian cos

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