We maintain buy rating on Coal India (CIL) with a target price of R443 a share. At current market price (CMP), the stock offers total returns of ~26% (including ~4% dividend yield). On our FY16f normalised earnings (adding back OB removal adjustment to EPS and ebitda + adding surface transport and loading charges to ebitda), the stock trades at 10.5x P/E (EPS of Rs 34.6) and 6.3x EV/ebitda (12.7x P/E and 8.2x EV/ebitda on reported earnings).
We maintain that though there are arguably no quick fixes, the government?s visibly stronger impetus on ensuring Centre-state administrative coordination to facilitate timebound project clearances and build-out of key rail projects bodes well for volume-led earnings growth prospects for CIL.
CIL?s coal production and offtake saw a healthy y-o-y uptick in August 2014 ? production and offtake was up 9% and 6% y-o-y, respectively, the highest in FY15 to 34.5 million tonnes (mt) and 37.3 mt, respectively. August coal production and offtake was 1.7% and 1.4% below CIL?s MoU-based targets (lowest monthly deficit in FY15). Sequentially, while coal production was up ~5%, offtake dipped by ~2%.
Healthy y-o-y production and offtake growth can be attributed to the performance of CCL and MCL (uptick seen in CCL was on account of start-up of its Amrapali coal mine), partially offset by a dip in production/offtake at SECL and NCL (largely due to hindrances in transport & loading). There was notable inventory build-up at CCL.
