Brokerage houses slashed earnings estimates as well as target price on Coal India after the world's largest coal mining company reported dismal performance in the quarter ended September 2016. The stock fell more than 4 percent intraday Wednesday.
Credit Suisse says incorporating higher costs (stores/others) pulled down its FY17-19 EPS by 7-20 percent and DCF-based target price to Rs 370 (from Rs 385 earlier). After today's correction, it sees little downside to the stock.
With maintaining hold rating on the stock, Jefferies also cut FY17/18 EPS by 16 percent/15.5 percent and target price to Rs 288 from Rs 328, saying earnings would remain under pressure but strong dividend yield potential should offer downside support.
Cash forms 24 percent of its market cap and dividend yield remains 5-7 percent.
Coal India reported very weak Q2 results on account of higher costs across heads. Almost half of the miss is explained by the Rs 710 crore provision for employee costs (10 percent higher than normal). Inventory liquidation and higher other costs (corporate social responsibility, washed coal related) further dented EBITDA.
Profit on consolidated basis fell sharply by 77.4 percent year-on-year to Rs 600.4 crore in Q2, impacted largely by wage hike provision and lower realisation.
Employee benefits expenses increased 14.6 percent to Rs 8,407 crore and EBITDA dropped 78.2 percent to Rs 742.7 crore. Margin contracted by 1490 basis points to 4.6 percent while revenue declined 7.3 percent to Rs 16,212.6 crore on yearly basis.
Weakness in e-auction premiums was more than offset by better-than-expected fuel supply agreement (FSA)/washed coal realisations.
Auction premiums seem to have bottomed out now, Credit Suisse feels. October-16 auction premiums were at a 23 percent premium to notified prices.
The brokerage house says while uncertainty on wage costs remains an overhang, there are a number of positives - offtake growth is returning after a lull as power plants restock, thermal power generation is up 8.3 percent so far month-to-date, and thermal coal imports are down 11 percent YoY in the last two months.
According to Jefferies, stronger volume growth & better e-auction premium could offer some relief in H2FY17.
At 14:52 hours IST, the stock was quoting at Rs 292.95, down Rs 12.80, or 4.19 percent amid high volumes on the BSE.
Posted by Sunil Shankar Matkar