Accumulate Coal India; target of Rs 225: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coal India

Coal India (COAL) reported Q3FY20 EBITDA in line with our expectation. Impacted by extended monsoon and local issues, volumes fell 8%YoY/6%YoY in Q3FY20/9MFY20. Volumes improved meaningfully December onwards with growth at 6% on the back of better condition of mines (after heavy rains), receding contractor and local level issues. In spite of weakness in E-auction segment (Realisations/volumes down 8%/33%), overall realisations remained flat YoY due to 6% increase in FSA realisations, led by improvement in grades and higher realisations on auction of linkages in non-power segment. Given the low base (down 3% in FY20e), improved demand outlook and better logistics availability, we expect volumes to grow by 6%/5.5% in FY21E/FY22E. Weakness in E-auction realisations for FY21E would be offset by strong availability due to higher production. COAL underperformed Nifty by a wide margin of 28%/23% over One-year/six-month.

Outlook

The under performance has been largely due to unabated stock supply by its promoter, Govt of India. Resultantly, valuations fell to all-time low with EV/EBITDA of 2.5x and P/E of 5.3x FY21E, pushing dividend yield to near-highs of 9%. Regular stock supply restrains us to upgrade the stock despite attractive valuations and better earnings outlook. Hence, we maintain Accumulate with TP of Rs225 (earlier Rs230), EV/EBITDA of 4x FY21E.

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