Sharekhan has given Buy recommendation for Coal India with a target price of Rs. 160 in its research report issued on Feb 12, 2021
Sharekhan’s research report on Coal India
Q3FY21 operating profit of Rs. 5,165 crore (up 29.9% q-o-q) was 10% above our estimate as efficient cost management helped EBITDA/tonne beat expectations at Rs. 336/tonne (up 13% q-o-q). PAT at Rs. 3,085 crore was 14% below estimates due to lower other income and a high tax rate. Coal inventory at power plants fell to 18 days, which bodes well for higher coal offtake over Q4FY2021-Q1FY2022. Moreover, blended realisations expected to improve as e-auction premiums also improved to 25% versus 16% in 9MFY2021. Capital allocation for non-core investments (aluminium smelting and solar energy) would be done if there are reasonable returns. Non-core investment would be taken up in partnership with established players and Coal India will not expose itself to technology/capital risks.
Stock trades at an attractive valuation of 4.6x its FY2023E EPS (close to trough valuation) and offers a high dividend yield of 10-12%. Hence, we maintain a Buy rating with an unchanged PT of Rs. 160.