Buy Coal India; target of Rs 360: ICICI Direct

On the back of rise in global coking coal prices, two of the coking coal producing subsidiaries of Coal India, Bharat Coking Coal (BCCL) and Central Coalfield (CCL), have increased prices. BCCL has increased coking coal prices by 20% over the current price while prices of steel grade and direct feed coal have been linked to price of washed coking coal fixed on import parity price.

We have upward revised our topline and EBITDA estimates for FY17E and FY18E to reflect the healthy traction observed in e-auction volumes and the price hike taken. We have assumed e-auction sales volume at 100 million tonne (MT) for both FY17E and FY18E (upward revised from earlier 82 MT and 90 MT for FY17E and FY18E respectively). We value the stock at 8x FY18E adjusted EV/EBITDA and arrive at a target price of Rs 360. We have a BUY recommendation on Coal India. Overall, we remain positive on the long term prospects of the company on the back of lower cost of production and healthy dividend yield. CIL has a strong balance sheet, healthy cash flow and net cash status, which also augurs well for the company.