Accumulate Coal India; target of Rs 390: PLilladher

Prabhudas Lilladher is bullish on Coal India and has recommended accumulate rating on the stock with a target of Rs 390 in its August 08, 2012 research report.

“Coal India (CIL) revised its penalty structure from the earlier 0.01% to anywhere between 1.5 -40%, depending on the level of shortfall. Consequently, CIL would be required to pay 1.5% of the shortfall value if coal delivered is between 65-80% of the Annual contracted quantity (ACQ), while in the worst case scenario, the penalty would be as high as 40% if CIL supplies below 50% of ACQ. Based on our estimate, we don’t see any case for off-take below 80% (65% domestic and 15% imported) in the next couple of years.”

“We believe that concerns pertaining to import of coal by CIL are overblown in the light of the fact that the price pooling is a mere mechanism to replace the current import done by power utility companies with CIL. Power utilities imported ~45m tonnes of coal during FY12. Price pooling mechanism would enable utility companies to claim pass-through for the increased prices since the average prices (domestic and imported) would be notified by CIL."

"In the light of such a significant favour to the power sector, we don’t think sector would object to any justified price increase by CIL. Surprisingly, the off-take grew marginally by 1.2% in July 2012 at 36.2m tonnes owing to decline in transportation through MGR and Road, negating the growth in Rail component. Our channel checks suggest that rakes count/day fell to ~150-152 during August so far against an average of 180 in July on account of heavy seasonal rainfall in mine-bearing areas. However, it’s up 12% over the same month last year. We expect 6-7% growth in off-take for the month of August,” says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos   

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