INSUBCONTINENT EXCLUSIVE:
Centrum Broking has a buy call on Coal India with a target price of Rs 375.
The current market price of Coal India is Rs 281.20.
Time period
given by the brokerage is one year when Coal India price can reach the defined target
Centrum Broking's view on Coal India:Strong volume growth and robust realisations, e-auction share falls to make way for higher power
sector supplies: FSA Volumes stood at 130.4 MT (up 22 per cent YoY and 9 per cent above estimates) with a high share of 85 per cent in total
FSA Realizations stood at Rs1313/t, up 9 per cent YoY led by price hikes partially negated by inferior coal mix (higher supplies to power
sector) and stood 2.8 per cent lower vs exp
Grade slippages remained minimal
E-auction volumes stood at 19.4 MT, down 29 per cent YoY and lower vs our exp
of 30MT on account of higher allocation to power sector due to strong seasonal demand
E-auction realizations moved up 51 per cent YoY and 13.6 per cent QoQ to Rs2400/t led by higher global prices.
EBITDA performance strong,
miss only due to lower e-auction share: Adjusted EBITDA (ex-OB) at Rs66.2bn grew 94 per cent YoY and stood 4.5 per cent below our estimates
due to lower e-auction volumes
Cost/t stood at Rs 1,207, up 6 per cent YoY driven primarily by employee expenses which had one time extra expense of Rs3bn
Most other major expenses were lower YoY on per tonne basis
Despite lower e-auction share, EBITDA/t stood at Rs431/t, up 73 per cent YoY
Employee cost guidance forthe full year remains at nearly 365bn with a quarterly run-rate of Rs90-91bn.
Earnings outlook remains bright:
With CIL delivering strong volume growth in YTDFY19 led by an all-round focus on production and offtake, we revise our total volume
estimates to 626MT/657MT for FY19E/20E
We lower e-auction volume estimates to 100MT/105MT in FY19E/20E even though management maintained its guidance of 110-115MT
We build FSA/E-auction realisations of Rs1325/2100 for FY19E
With concerns around cost addressed, we see CIL earnings tracking volumes realisations and expect adj
EBITDA CAGR of 27 per cent over FY18-20E.
Valuations Risks – Recommend Buy: CIL stock has remained an underperformer in last two years
due to subdued earnings and low confidence of the market in its future outlook leading to de-rating
The stock is trading at FY19E adjusted P/E of 9.6x and EV/EBITDA of 5.5x and is poised for re-rating with strong triggers of better volume
growth, improved pricing, increasing auction-linked volumes and attractive dividend yield to pave way for re-rating
Maintain buy with TP of Rs375
the key downside risk is unfavourable use of high cash lower volumes.
