Accumulate Coal India; target of Rs 310: P Lilladher

Prabhudas Lilladher's report on Coal India

"Coal India has effected an increase (i) in their non coking coal sizing, (ii) in their rapid loading charges, and (iii) notified prices of non coking coal produced by Western Coal Fields. While it hiked the notified prices of non-coking coal in western coal field (44-45mt/8 percent of CIL's total volumes) by 10 percent, the non coking coal sizing charges have been increased in a range of 15-60 percent depending on the sizing. Company expects to earn an incremental revenue of Rs3.37bn in total for the remainder of FY14 or Rs 12bn (Rs23/t) on annualised basis. However, we do not see material upside to our FY15 earnings estimates since we have already factored an increase of 2.8 percent or Rs40/t in realisatiions in our model."

"Chairman, in his interview to CNBC, commented that interim/special dividend would be considered in February along with 3QFY14 results. The Board also ruled out buyback option in their board meeting held on 16 December 2013. We estimate that CIL will pay special dividend in the range of Rs25-30/share to make up for government's shortfall on divestment target."

"CIL disappointed the street in 2Q with surprise fall in FSA realisations coupled with slippage in grades. We believe that street would wait for Q3 earnings to decide whether the hike is incremental or off-setting factor. CIL's E-auction volumes are expected to grow 50-55 percent YoY in Q3FY14, would more than offset the 25 percent fall in realisations. This would put rest to market's concern on volumes and earnings in E-auction."

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