Buy Coal India; target of Rs 388: Choice Equity

Choice Equity’s research report on Coal IndiaCoal India Ltd, the largest coal miner in the world reported a mixed set of numbers for Q2 FY16. The company reported a consolidated top-line of Rs. 169,575.9mn, which was in-line to our expectation. Lower charge towards over burden removal (OBR), mainly led to a lower than expected operating expenditure. Consequently, consolidated EBITDA stood at Rs. 24,761.2mn as against to our expectation of Rs. 23,044.6mn. Further, bottom-line stood at Rs. 25,190.4mn, which was in-line to our expectation.Outlook and  ValuationWe anticipate Coal India’s coal production to increase by 9% to 538.6mn tonnes in FY16 as against the company’s target production of 548mn tonnes. On coal offtake front, Coal India is expected to report a growth of 10% to 537.9mn tonnes. Taking into consideration the fall in e-auction realization, we have lowered the revenue from e-auction mode be around 14.8% in FY16. We foresee a minimal impact on the top-line due to lower e-auction price, but we have lower the FY16E bottom-line by 12.4%. At CMP of Rs. 331, Coal India’s share is trading at TTM P/E multiple of 15.1x. Based on DCF valuation methodology, we arrive at a target price of Rs. 388 per share, reflecting a return of 17.1%. Thus we reiterate our “BUY” rating on the stock.

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