Motilal Oswal's research report on Coal India
FSA realization declined INR 37/t YoY to INR 1,201/t in 1QFY18 due to the sale of old inventory (which has lost some GCV) and the full impact of re-grading of mines. COAL de-stocked 18mt in 1Q, highest in a quarter. Mines would be graded every six months, with potential for even an upward revision. Incentive income is unlikely going ahead (INR 7b in FY17) due to clubbing of linkages. We cut FSA realization by INR 43/t to INR 1,233/t due to grade slippages and no incentive income.
Outlook
Concerns about grade slippage and employee wage hikes are largely priced in. Volume growth is accelerating on re-stocking. GST of 5% (earlier 12%) has provided some headroom for price hikes. There is scope to cut costs by reducing inefficiencies/overheads. Resultantly, we revise the target EV/adj. EBITDA multiple from 7.5x earlier to 8x. TP is revised to INR 275. Re-iterate Buy.
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