Accumulate Coal India; target of Rs 422: P Lilladher

Prabhudas Lilladher's report on Coal India

Ministry of Coal (MoC) released draft methodology for proposed auction of coal linkages/LoAs to non-regulated sectors. Going forward, all the new linkages would be allocated through the auction route only. Existing linkages would stand terminated by 1st July, 2016 or the date of expiry of Fuel Supply agreement (FSA), whichever is earlier. In order to evade the risk of manipulation in auction, MoC adopted the unique methodology of bidding on volumes at progressively increasing prices set by the auctioneer (Coal India/Singareni).

"COAL would benfit from the auction as it will improve its realizations on its 58m t of coal (equivalent to 12% of total quantity in FY15) sold through linkages to nonregulated sector. However, the benefit would be limited to lower grade coal as higher grade coal is already being sold close to or at premium to import parity. Due to absence of data related to grades of coal within linkage coal, we are unable to quantify the impact on its earnings. We maintain our positive rating on Coal India with TP of Rs 422, EV/EBITDA of 7.5x FY17E. Accumulate the stock", says Prabhudas Lilladher research report.

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