ICICIdirect.com is bullish on Coal India and has recommended buy rating on the stock with a target of Rs 400 in its August 14, 2014 research report.
"Coal India, total operating income for Q1FY15 came in at Rs 17799.5 crore up 8.1% YoY and in line with our estimate of Rs 17936.4 crore. Total sales volume came in line with our expectation of 119.6 MT while blended realisation stood at Rs 1488/tonne (higher by 4.2% YoY). E-auction volume for the quarter came in at ~16.8 MT (higher by 27% YoY) accounting for ~14% of the total sales volume. E-auction realisation came in at Rs 2246/tonne (up 4.9% YoY). FSA volume for the quarter stood at 99 MT while FSA realisation came in at Rs 1320/tonne (up 1.8% YoY). Employee cost remained flat QoQ, which led to better-than-expected EBITDA margin. The lower employee expense is likely on account of employee attrition. EBITDA margin for the quarter was at 24.1%, higher than our estimate of 22.1%. EBITDA/tonne was at Rs 358/tonne, higher than our estimate of Rs 331/tonne. The ensuing EBITDA came in at Rs 4281 crore, up 8.2% YoY and better than our estimate of Rs 3955.7 crore. The consequent PAT came in at Rs 4033.3 crore, up 8.1% YoY. It was better than our estimate of Rs 3674.1 crore."
"Coal production at CIL has been sluggish with FY13 and FY14 coal production growth at 3.7% and 2.3%, respectively. We believe the recent relaxation in environmental norms is likely to aid CIL in ramping up production. Going forward, we expect the company to clock coal production CAGR of 6.0% in FY14-16E to 520 MT. On the back of increasing coal production and better rail raw rake availability, we expect coal sales volumes to grow at a CAGR of 5.5% in FY14-16E to 525 MT. CIL produces ~90% of its coal through open cast mining and witnesses low stripping ratio (1.8 during the nine months ended FY14), thereby ensuring that reserves are easily extractable. Hence, this helps to position the company as among the lowest cost coal producers in the world. CIL's blended cost of production stands at ~Rs 1050/tonne (~US$18 /tonne)."
"CIL has a strong balance sheet with robust cash flows and a healthy liquidity position. In FY14-16E, we expect the topline, EBITDA and PAT to grow at a CAGR of 8.9%, 12.7% and 15.3%, respectively. The stock is currently trading at FY16E adjusted EV/EBITDA of 5.7x. We have valued the stock at 7x FY16E adjusted EV/EBITDA (adjusted for overburden removal) and arrived at a target price of Rs 400 with a BUY rating. A healthy dividend payout and impressive dividend yield (~3.2% on a normalised basis) reinforce our positive stance on the company. With the stable government in place at the centre, we believe the stock will be a key beneficiary of reforms in the sector," says ICICIdirect.com research report.
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