ICICI Direct recommended hold rating on Coal India with a target price of Rs 225 in its research report dated November 13, 2019.
ICICI Direct's research report on Coal India
Coal India (CIL) reported a steady set of Q2FY20 numbers. Higher-than-expected FSA realisations supported overall earnings for the quarter. The company reported a sales volume of 122 million tonne (MT) (down ~11% YoY). FSA sales volume came in at 104 MT (broadly in line with our estimate of Rs 105 MT) while FSA realisations during the quarter was at Rs 1439/tonne (up 5% QoQ, higher than our estimate of Rs 1350/tonne). E-auction volumes came in at 15 MT (broadly in line with our estimate of 14 MT) while the e-auction realisations were at Rs 2020/tonne (down 6% QoQ, broadly in line with our estimate of Rs 2000/tonne). The company reported a total operating income of Rs 20383 crore, down 7% YoY. EBITDA came in at Rs 3611.2 crore, (higher than our estimate of Rs 3240.1 crore). EBITDA margins came in at 17.7%, higher than our estimate of 17.3% (17.6% in Q2FY19). CIL reported EBITDA/tonne of Rs 295/tonne (higher than our estimate of Rs 265/tonne). PAT was supported by a lower effective tax rate, which came in at ~17.6%. Ensuing PAT came in at Rs 3523 crore, up 14% YoY (higher than our estimate of Rs 2505.8 crore).
Coal India reported a healthy performance for Q2FY20 on the back of better-than-expected FSA realisations. Going forward, on the back of the subdued trend witnessed in Coal India production and offtake trend, we downward revise our volume estimate. Going forward, we expect EBITDA margins to remain steady at ~22% over the next couple of years. We value the stock at 5x FY21E EV/EBITDA and arrive at a target price of Rs 225. We maintain our HOLD recommendation.
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