Accumulate Coal India; target of Rs 369: Aditya Birla Money

Aditya Birla Money is bullish on Coal India (CIL) and has recommended accumulate rating on the stock with a target of Rs 369 in its June 15, 2012 research report.

“Coal India (CIL)’s consolidated net sales grew 29.4% YoY to 194.2bn on account of higher (1) coal realisations (both FSA and e-auction), (2) e-auction sales volume and (3) bonus incentives. Dispatch increased 8.6% YoY and 11.8% QoQ to 122.9mn tonnes. Production grew 9.6% YoY to 144.6mn tonnes. E-auction sales volume grew 12.8% YoY and 28.2% QoQ to 14.72mn tonnes while E-auction coal realisations were up 37.8% YoY and remained flat QoQ at `2852 per tonne. Bonus incentives for supplying more than the threshold quantities were at `10bn as compared to `6.7bn. Our back-of-the-envelope calculations suggest that CIL has likely increased FSA realisations by 5%-6% QoQ, on account of the change in pricing mechanism from UHV to GCV. The management has been evasive on the extent of FSA price increases. The coal pricing at the subsidiaries- WCL and ECL- were impacted negatively on account of grade slippages. The management has indicated for a price increase in these subsidiaries.”

“CIL’s adjusted consolidated EBITDA grew 25.7% YoY and 38.2% QoQ to `62.9bn on account of increase in coal realisations, e-auction sales and bonus incentives. There was a non-recurring adjustment of wage provisioning for actuarial valuation for post-retirement benefits to the tune of ` 25bn. CIL’s consolidated adjusted PAT grew 36.1% YoY and 42% QoQ to `57.3b on account of higher EBITDA and non-operating income. On a conservative basis, we had earlier modelled for an elimination of provisioning for overburden removal under IFRS from FY13E onwards. For CIL, while provisioning under Overburden Removal Adjustment A/C as a non-cash expense decreased earnings, it helped in deferring tax outflows. With the deferment of the elimination of overburden removal adjustment a/c to FY14E from FY13E in our model, our FY13E EPS would decrease.”

“With the revision of our earnings estimates and quarterly rollover of our 1 year forward DCF value, our 1 year target price increases by 0.4% to `369 from `367 earlier. Note that we have already factored in the full impact of the 26% profit sharing provision of the MMDR bill (18.7% of our 1 year forward DCF value of CIL). Our target price implies a potential upside of 11.5% from the CMP. We, thus, retain our Accumulate rating on Coal India,” says Aditya Birla Money research report.         

Non-Institutions holding more than 90% in Indian cos

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