Buy Coal India; target of Rs 280: Sharekhan

Sharekhan's research report on Coal India

Consolidated Q2FY23 operating profit of Rs. 7,280 crore (up 85% y-o-y) lagged our estimate as margins were impacted by higher employee costs (up 13%/8% y-o-y/q-o-q) and lower blended realisation. PAT of Rs. 6,044 crore (up 106% y-o-y) was 5% above estimates led by substantially higher other income and lower tax rate E-auction realisations rose 40% q-o-q to Rs. 6,064/ tonne, with e-auction premium of 329% versus 200% in Q1FY23 while increase of 2.3% y-o-y in FSA realisations to Rs. 1414/tonne was marginally lower than estimates. Coal offtake was up by 4.8% y-o-y to 155 mt. FSA volumes surged by 22% y-o-y to 142mt but e-auction volume plunged by 62% y-o-y to only 10.4 mt. We have cut our FY23-24 earnings estimate to factor in lower e-auction realisations and higher costs. Despite earnings cut, the outlook remains promising given a healthy volume growth (up 6% y-o-y rise in FY23YTD) and high e-auction premium is also holding firm. We thus expect a strong 20% PAT CAGR over FY22-25E. Potential stake sale in Bharat Coking Coal Limited (BCCL) and subsequent listing would unlock value.

Outlook

The stock trades at an attractive valuation of 5.6x/5.1X its FY24E/FY25E EPS (close to trough valuation) and offers a high dividend yield of 12-13%. Hence, we maintain a Buy with an unchanged PT of Rs. 280.

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Coal India - 08-11-2022 - khan