Buy Coal India; target of Rs 436: Emkay Global

Emkay Global’s research report on Coal IndiaRevenue came in at Rs 169.6 bn +8.2% YoY; 10.5% QoQ and 3% light of our expectation. Average blended realizations stood at Rs 1392/tonne (-2% YoY and -5% QoQ). Dispatch volume was reported at 121.9 mt (+10.4% YoY) with e-auction volume at 14.7 mt (+39% YoY) and FSA volumes at 103 mt (+7% YoY). EBITDA stood at Rs 24.8 bn; +19.6% YoY, -43.5% QoQ lighter than our estimate due to rise in per tonne cost. EBITDA/tonne stood at Rs 203/ tonne (+8% YoY and -40% QoQ). Adj EBITDA/ tonne stood at Rs 207/tonne (-13% YoY; -48% QoQ). APAT at Rs 25.2 bn (+15.2% YoY/ -33.5% QoQ), which was below our estimate due to seasonality; Overburden removal adjustment was reported at an all-time low of Rs 0.4 bn, (-93% YoY; -94% QoQ). We remain positive on the future prospects of the company led by visibility on the volume growth, and price stabilization. We retain Buy on the stock with revised target price of Rs436Outlook  and valuationsAccording to our interaction with management, all the company’s projects are progressing at good pace and we expect good volume growth going ahead. Also rake availability for Coal India has increased to 230/day, which is a good improvement. Looking at growth in dispatch volumes, we have revised our dispatch growth assumptions upwards to 9% for FY16 and 8% for FY17 while for FY18 it remains at 8%. So far in April- October period the company has delivered 9.1% production growth and 9.9% dispatch growth. We continue to believe that, the company can beat our estimate on the higher side, as the management is very confident on achieving better performance. On realizations front, we have reduced FY16 estimate to be Rs 1460 on blended basis which is flat YoY and increase 8% in FY17 and 4% in FY18. Our assumptions for E-Auction stands revised at Rs 1961 for FY16. We further expect rationalization of prices in FY17 to counter the hike in employee costs. Beyond that we expect there could be normal rise in prices. Based on the above we reduced our estimates

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