Accumulate Coal India; target of Rs 255: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coal India

Coal India’s (COAL) posted back to back strong set of earnings for 1QFY23 on back of strong realisations in FSA (despite reduced volumes to non-power sector) and E-auction. Reported EBITDA grew 153%/35% YoY/QoQ to Rs122.5bn, ahead of our/consensus estimates (CE) of Rs81.4bn/Rs82.5bn. Adjusted EBITDA (before notional stripping activity adj) grew 74%/2.5% YoY/QoQ to Rs127.6bnbn (PLe:Rs92.0bn). QoQ, the growth in Adj. EBITDA is lower due to high stripping cost in Q4FY22 at Rs33.9bn. COAL displayed strong performance on off-take and FSA realisations over last one year. Delay in increase of FSA prices (85% total volumes) were more than offset by better coal grade management (resulting in higher FSA realisations) and strong E-auction realisations in wake of robust global prices. Investors argue that COAL’s costs are understated as wage revision is pending for non-executive employees (94% of total headcount) since July’21, overlooking the fact that FSA prices are also not increased for last four and half years. Usually, upward revision in wages is followed by hike in FSA prices.

Outlook

We increase our FY23e/FY24e EBITDA estimates of COAL by 18%/12% on account of higher FSA and E-auction realisations. Maintain Accumulate rating with revised TP of Rs255 (earlier Rs220) based on EV/EBITDA of 2.5x FY24e.

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