Positive on Coal India for long-term, says Macquarie

Rakesh Arora, HoR India at Macquarie Capital Securities says he is comfortable with Coal India from a longer-term perspective.

Arora told CNBC-TV18, “Coal India (CIL) like all other government companies wherever the follow-on public offerings (FPOs) have been announced, there is lack of investor interest because they think there is a huge supply, which is going to come and the stock has fallen quite a bit.”
”We see no issues on the fundamental side that makes us alarming about this company. The company has around 9-10 percent free cash flow yield and it is difficult to find such companies even globally. It is now trading at a huge discount to global coal companies. So, I think it is only a matter of time. Hopefully, the FPO happens by April-May and things should bottom out,” Arora added.
He further said, “What Coal India can do probably in between is take a price hike because their costs have been increasing. Some of the sister concerns like Singrauli Colliery, GMDC etc have already taken the price hikes. So, it is high time that CIL decides on a price hike. That will throw the short squeezes a little bit off the mark and probably the stock can go up.”
”Secondly, the government can even consider doing a buyback rather than an FPO because this company is sitting on USD 12 billion of cash. It makes sense to do a buyback rather than doing an FPO at this very low pricing. So, we are comfortable with Coal India from a longer-term perspective and probably investors can wait for FPO to buy. That will be the cheapest entry point I think,” Arora added.