Buy Coal India; target of Rs 350: JM Financial

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26 Aug, 2025 12:21

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JM Financial's research report on Coal India

Coal India (CIL)’s net profit – adjusted for a one-time gratuity provisioning – stood at INR 62bn (+42% YoY), resulting in FY18 profit growth of 3% YoY (despite a profit decline of 16% in 9MFY18). Notably, the price hikes taken in Dec’17 are reflected in FSA realisations, which grew 19% QoQ to INR 1,403/T, while e-auction realisations improved 31% YoY to INR 2,112/T. FY18 profit growth is led by a) 6.5%/13% YoY growth in FSA /e-auction volumes and b) e-auction realisations growing 20% YoY. The positive impact of coal re-stocking by power plants is clearly evident in higher off-take growth for CIL (6.8% in FY18). We factor offtake growth of c.7% in FY19-20 for CIL vs. management’s target of 8.6% in FY19. While FY18 profit growth has been flattish due to wage provisioning, we estimate high growth in FY19 profits (c.20%), despite factoring only 7% offtake growth (vs. management’s target of 8.6%) and lower e-auction prices. With all the negatives of wage provisioning and degradation already factored in FY18 earnings, the benefit of growing volumes and price hike would reflect in FY19/20.

Outlook

We maintain BUY with a DCF-based TP of INR 350, while CIL currently trades at 5x FY20 EV/EBITDA and P/E of 11.8x FY20.

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