Emkay Global Financial is bullish on Coal India has recommended buy rating on the stock with a target price of Rs 180 in its research report dated November 13, 2020.
Emkay Global Financial's report on Coal India
E-auction premium at just 1.8% was below our estimates. However, a sharp jump in Eauction volumes helped mitigate the reduction in premium. In addition, the FSA price gain of 4% qoq and negative OBR helped boost EBITDA. We note that Coal India plans to invest Rs650bn over the next 4-5 years to reach its aspirational goal of 1bn tonne production capacity. Unless the E-auction premium rises substantially, operational cashflow will not be able to fund the steep capex. Receivables continued to rise as gencos delayed payments. Management highlighted incremental volumes are not leading to substantial rise in receivables. However, liquidation of old receivables is yet to be addressed. It wrote off Rs3.5bn disputed amount with NTPC. We reduce FSA premium by 20%/21% for FY22/23E.
We also build in higher capex as management targets 1bn tonne production by FY24. This has led to a reduction in our TP to Rs180 from Rs208. Maintain Buy. Key risk is low E-auction premiums.
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