Hold Coal India; target of Rs 317: Emkay

Emkay's report on Coal India (CIL)

"Coal India (CIL) has hiked prices of non-coking coal (G-6 to G-17) bands of its subsidiary Western Coalfields Limited (WCL) by 10 percent w.e.f 17th Dec 2013. In FY13 WCL accounted for 9 percent of CIL volumes. The company has hiked coal prices of WCL due to its higher costs (strip ratio at WCL mine at 4x compared to coal India of 1.8x). We have seen that the company prices its coal at WCL mines in line with Singareni Collieries (SCCL) which was at 50 percent discount to SCCL. Coal India has also revised raw noncoking coal sizing charges and rapid loading charges: The Company has hiked sizing charges and rapid loading charges across the board primarily due to increase in the cost however didn’t specify the cost items. With these changes, CIL expects to garner additional revenues of Rs 3.37 bn in FY14 (for 105 days) & Rs11.7 bn for FY15E."

"We believe CIL has hiked charges like crushing/sizing & rapid loading charges to offset the negative impact of grade rationalisation which took place in Q2FY14 along with increasing operational cost. The increase in charge today has effectively meant a 2nd price hike post the price hike taken on May 28th . We believe post these hikes it would be difficult for CIL to take another price hike for the power FSA consumer. With no meaningful triggers ahead, we believe the stock is unlikely to see re-rating despite valuation in favor (trading at 6.3x/5.1x FY14E/15E EV/EBITDA). We believe 2HFY14E operational performance remains key area to watch. Maintain hold with revised target price of Rs 317," says Emkay Global Financial Services research.

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