Hold Coal India; target of Rs 303: Edelweiss

Edelweiss' research report on Coal India

We revise upwards our target price for Coal India (CIL) to INR303 (earlier INR275) following the significant price hike announced by the company ahead of consensus. However, we maintain ‘HOLD’ on the stock as: 1) risk‐reward looks evenly matched with the recent price hike likely to offset the adverse impact of increased wages; 2) absence of additional growth triggers; and 3) E‐auction premium expected to progressively decline from current levels of 30% to maintain international price parity. Thus, we raise our FY18/19E EPS by 26%/28% to reflect the price hike, but trim our target P/E multiple to 12.5x (earlier 14.5x).

Outlook

While we are upbeat on the current price hike taken by CIL as it is expected to restore profitability to pre‐wage hike levels, we do not see any additional near term triggers in the stock. Taking cognizance of price hike, we have increased our FY18/19E EPS by 26%/28% but, lowered the ascribable multiple to 12.5x (earlier 14.5x). Maintain ‘HOLD/SP’ with a revised TP of INR303 (earlierINR 275). At CMP, the stock trades at 12.1x FY20E EPS.

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