Coal India's April 2020 production and sales suffered the steepest decline while the company's near-term outlook looks hazy due to the nation-wide lockdown.
However, brokerages have not lost hope in the stock and see a healthy upside in it, in days to come.
Brokerage firm Equirus Securities has upgraded the stock to 'long' from 'add', but cut the target price to Rs 190 from Rs 205 earlier.
"Given the long-term threat to coal demand, we value Coal India using the DCF (discounted cash flow) methodology to reach a target price of Rs 190. At our target price, Coal India trades at about 3.8 times FY21E adjusted EBITDA, lower than its 9-year mean of 7 times," Equirus said.
As per the brokerage, Coal India posted a tepid FY20 with production volumes declining about 1 percent and sales down about 4 percent. In April 2020, however, the production and sales decline was much sharper at about 11 percent and 26 percent YoY, respectively, due to the nationwide lockdown.
This, as per Equirus, is the steepest drop in volume offtake after Coal India’s listing.
In days to come, one of the top headwinds for Coal India is muted thermal power generation.
"Coal stocks at power plants are currently at 31 days against a 10-year average of 13 days. High coal stock at power plants coupled with muted thermal generation is likely to hurt short-term growth in coal demand,"
said Equirus.
The brokerage has slashed FY21E volume estimates by about 11 percent and model a volume decline of 3 percent for the year.
On the front of earnings, the company is expected to see a contraction in sales and EBITDA margin for FY21 but FY22 may be the year of revival.
Edelweiss Securities has a buy recommendation on Coal India with a target price of Rs 160. It said Coal India’s April 2020 performance is a telltale of Corona woes.
As per the brokerage, the challenges for the company include high pit-head inventory, low demand from power plants and the possibility of low e-Auction premium.
However, on the positive front, Edelweiss sees the end of production woes and larger subsidiaries (MCL and NCL) performing relatively better.
"Despite likely dip in cash accretion, we do not envisage risk to dividend payout owing to the healthy cash balance. We maintain ‘buy’ with a target price of Rs 160 (exit multiple of 7.2 times FY22E EPS)," Edelweiss said.
In the calendar year 2020, shares of Coal India have fallen nearly 33 percent against a 23 percent fall in benchmark Sensex.
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