Motilal Oswal's research report on Coal India
Coal dispatch growth was sluggish at 1.5% YoY to 41.5mt in July and 2.6% YoY to 174mt YTD, as against growth estimate of 5% YoY (to 562mt) for FY17E. Production grew 5.5% YoY to 36.7mt in July and 3.8% YoY to 162mt YTD. Dispatches from ECL jumped 31% YoY following 13% YoY growth in June as pricing of high-grade coal has become competitive, driven by (1) price cut w.e.f. May 31 and (2) an increase in global coal prices. WCL posted a decline of 50% in dispatches. MCL dispatches increased YoY. MCL’s share in Coal India’s (COAL) total off-take increased from 25% to 27% YTD July. SECL dispatches declined ~6% YoY. CCL dispatches were broadly unchanged YoY.
Valuations are attractive at bottom of cycle coal prices; Maintain Buy Although volume growth has been sluggish so far in the year, we expect dispatches to pick up in the rest of the year due to import substitution and demand growth. Price rationalization exercise has been useful. The stock trades at 7x FY18E EV/EBITDA (ex-OBR). Valuations are attractive in view of bottom of the cycle coal prices and strong volume growth. We maintain our Buy rating with TP of INR 370/share.
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