Buy Coal India; target of Rs 424: SPA Research

SPA Research is bullish on Coal India and has recommended buy rating on the stock with a target of Rs 424 in its August 14, 2012 research report.

“Coal India came out with robust set of numbers. While topline was almost inline with our estimates, margins & profit were on a higher side. Topline grew by 13.8% YoY to INR 165 bn, helped by volume growth of 5.8% YoY & improvement in realizations by 7.6% YoY. EBITDA/tn stood at INR 428 vis-à-vis INR 453 in Q1FY12 & INR 308 in the sequential quarter, led by lower OBR expenses in the last quarter compared to the sequential quarter. We retain our "BUY" recommendation on the stock.”

“CIL reported net sales of INR 165 bn, up by 13.8% YoY & lower by 15.0% QoQ. This was led by volumes offtake of 112.57 mt in Q1FY13, up by 5.8% YoY & down by 8.5% QoQ and improvement in average realizations to INR 1466/tn, up by 7.6% YoY & lower by 2.1% QoQ (excluding incentives of INR 10 bn received in Q4FY12). Volumes were also helped by liquidation of 10 mn tn of inventory in Q1FY13. EBITDA margin contracted by 404 bps YoY (down by 968 bps QoQ) to 29.18% led by higher employee expenses at 37.2% of net sales, up by 355 bps YoY. Employee expenses got inflated by INR 12 bn in Q1FY13 on account of new wage agreement done by CIL in FY12. Employee expenses are not comparable on a sequential basis on account of higher provisioning CIL took in Q4FY12. EBITDA/tn stood at INR 428 in Q1FY13 vis-à-vis INR 453 in Q1FY12 & INR 308 in the sequential quarter, led by lower OBR expenses in the last quarter compared to the sequential quarter.”

“CIL's production in April-July 2012 stood at 134.27 mt, up by 5.3% YoY, while off-take at 149.03 mt was up by 5.0% YoY. Average rake availability at 178 rakes/day was up by 7.1% YoY. In April-July 2012, CIL met more than 99% of its targeted production and offtake. On the back of increased coal production, intact e-auction volumes, increased availability of rakes and FSA issue about to resolve, we expect CIL's revenue & net profit to register a CAGR of 8% & 14% respectively over FY12-FY14E. We retain our "BUY" recommendation on the stock with a target of INR 424 based on FCFE valuation approach,” says SPA Research report.

FIIs holding more than 30% in Indian cos

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