Hold Coal India; target of Rs 346: R K Global

R K Global has recommended hold rating on Coal India with a target of Rs 346, in its May 29, 2012 research report.

“Coal India revenue grew 29% Y-o-Y to Rs194189mn on higher dispatches; however operational efficiency got hit on higher expenditure. EBITDA fell by 25%Y-o-Y to Rs37856mn during the Q. However growth in other income and lower depreciation and interest cost partially offset the loss in profitability. PAT fell by 5% Y-o-Y to Rs40134mn. EPS maintained at Rs6/share compared to Rs7 per share of corresponding Q.”

“During the quarter the company’s production grew impressive by 29% Y-o-Y to 144mn ton compared to 131mn ton in Q4FY11. Further, offtake also grew by 7.6% to 122mn ton compared to 114mn ton in previous year. This led revenue to grow by 29%Y-o-Y to Rs19419mn in Q4FY12 compared to Rs150038mn in Q4FY11 and realized Rs1500/ton during the Q. The company guided 464mn tons production for FY13 and quiet confident to achieve such targets. Total expenditure increased by 14%Y-o-Y as a percentage of sales to Rs156334mn in Q4FY12 compared to Rs99800mn in Q4FY11. Out of total expenditure; raw material cost grew by 24.6%, employee cost by 18.3%, and miscellaneous expense by 15.5%; however there was fall in O&M expenses by 69% and administrative expense by 6.9% partially supported operational total cost. EBITDA declined by 25% Y-o-Y to Rs37856mn in Q4FY12 compared to Rs50237mn in Q4FY11. Further Other Income grew by 70% Y-o-Y to Rs23280mn in Q4FY12 due to higher interest income. Depreciation and Interest cost also fell by 11% Y-o-Y and 8% Y-o-Y during the Q also could not hold the fall in profitability. PAT fell by 5% Y-o-Y to Rs40084mn in Q4FY12 compared to Rs42213mn in Q4FY12.”

“At CMP of Rs315, the stock is trading at EV/EBITDA of 11x on FY14E EBITDA Rs186256mn. We valued CIL based on DCF, assuming risk free rate of 8%, beta of 0.58. We have used FY12-14 as explicit period for our forecast. Assuming cost of equity at 13.2% and terminal growth rate of 5.1% on the future cash flows, we arrive at an intrinsic value of Rs346/share (earlier achieved target of Rs360). At our target price, the stock offer upside potential of ~10%; we recommend to “Hold” the stock,” says R K Global research report.   

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