Prabhudas Lilladher recommended accumulate rating on Coal India with a target price of Rs 225 in its research report dated February 11, 2020.
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.
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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