Accumulate Coal India; target of Rs 370: Dolat Capital
Dolat Capital is bullish on Coal India and has recommended accumulate rating on the stock with a target of Rs 370 in its May 29, 2013 research report.
Dolat Capital`s research report on Coal India
"Coal India has delivered strong performance in Q4FY13 which was largely on back of lower OBR adjustment (which CIL attributed to shift in provisioning standards), despite full impact of diesel price hike and sharp fall in e-auction realizations. Coal India has increased blended prices by 4.77 percent which will help it realize revenues of Rs 25bn on full year basis and Rs 21.19bn in FY14. This price hike will help CIL to mitigate the cost increases and maintain its margins. Coal India is trading at an attractive valuation of 7.0xFY14 and 5.9xFY15EV/EBITDA and has a dividend yield of 5 percent. We continue to maintain our Accumulate rating on the stock with a price target of Rs 370 (8xFY15 core EPS + Rs 133 cash per share and 6.5xFY15 EV/EBITDA).""Coal India (CIL) reported 2.5 percent growth in revenue to Rs 199.0bn (DCe:199.82bn). Sales volumes grew 5.8 percent YoY to 130m (DCe:130m) tonnes. FSA sales volumes rose by 7.5 percentYoY to 109.5 mn tonne (DCe:111.5 mn tonne) whereas e- auction coal volumes grew marginally by 1.2 percent YoY to 14.9mn tonne (DCe:13 mn tonne). Sales were impacted by sharp fall in E-auction realizations, blended realisations declined 3.3 percent YoY to Rs 1532/tonne (DCe: Rs 1532/tonne), in line with our expectation. Realisations for FSA coal rose 4 percentYoY to Rs 1403/ tonne whereas for E Auction realizations have fallen by 19.1 percent to Rs 2307/ tonne. The realizations in FSA are higher due to incentives of Rs 13bn (Dce:Rs10bn) .Led by 53 percent fall in OBR adjustment cost and one-time provisioning of Rs 27bn for actuarial valuation last year, total cost/t fell 17 percent YoY to Rs 1061 (DCe: Rs 1097). However, adjusted for one-time provision, total cost has risen by 0.9 percent YoY. EBITDA/t rose 52 percent YoY to Rs 469 (DCe: Rs 431). Hence, EBITDA grew 61 percent to Rs 61.2bn (DCe: Rs 56.1bn). The difference at the PAT level narrowed down due to lower than expected other income of Rs 22bn (DCe: Rs 23.94bn) and higher tax rate (31 percent v/s DCe:30 percent). Other income (including operating income) despite higher cash, fell by 4.3 percent YoY to Rs 22.1bn (DCe: Rs 23.94bn). This was primarily due to lower than expected other operating income of Rs 6.6bn (DCe: Rs 8.84bn).Hence, PAT grew by 36 percent at Rs 54.0bn (DCe: Rs 52.78bn). Adjusted for one-time items, PAT fell by 8 percent YoY.""Coal India has increased the prices for grade G5-G17 (394mn tonne) by 12.5 percent whereas it has reduced the prices for category G1-G4 (24 mn tonne) by 10 percent. It has increased the prices for the Rajmahal mine (14mn tonne o/p in FY13)of ECL by Rs 300 as well as the prices for NLW (non linked washed coal) the prices in BCCL(22mn tonne) have been hiked by 10 percent. This cumulatively will lead to blended price hike of 4.77 percent for CIL for the volume of 418mn tones. The price hike will effectively compensate for the hike in cost due to increase inn diesel prices (Rs10bn for Fy14) and contractual labour expenses Rs (Rs 9-10bn). We expect the effective price hike to only add incremental EBITDA of about Rs 4-5bn,” says Dolat Capital research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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