Centrum's research report on Coal India
We re-instate our coverage on Coal India (CIL) and rate it Buy with a new TP of Rs375. We are enthused by the progress made by CIL in last six months in successfully tackling multiple headwinds around employee wage costs and FSA realisations and we expect CIL to deliver strong earnings growth over FY18-20E led by i) better demand and volume CAGR of 6%, ii) robust FSA pricing on the back of recent price increases and better grade compliance and iii) strong share of e-auction volumes at 18% of total volumes coupled with higher realisations supported by favorable global coal prices. Stock trades at inexpensive valuations of 6x FY19E EV/EBITDA despite attractive return rations and we expect strong case of re-rating as earnings improve. Dividend yield of 7%+ is an added positive.
Outlook
We ascribe EV/EBITDA multiple of 7x to FY20E earnings to arrive at our TP of Rs375. Recommend Buy. Key downside risk is unfavorable use of high cash & lower volumes.
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