Sharekhan has given Buy recommendation for Coal India with a target price of Rs. 185 in its research report issued on Sep 13, 2021
Sharekhan’s research report on Coal India
Coal India is seeking government nod to hike coal prices by 10-11% under a long-term contract for power companies. For every Rs. 50/tonne price hike, Coal India’s PAT would rise by 10%. Rising e-auction premium (46% in Aug’21) and higher coal offtake (up 24% y-o-y during April-August) would help PAT clock an 18% CAGR over FY21-24E with potential for earnings upgrade on likely rise in coal realisations. Management aims to lower receivables by ~40% to Rs. 12,000 crore by Mar’22. This coupled with a rise in earnings would improve cash to ~Rs. 26,000 crore in FY22 and help sustain high dividend payment ratio at ~65%.
Improving earnings growth outlook, high RoE of ~45% and dividend yield of ~12% makes valuation attractive at 5.1x FY23E EPS (close to trough level and ~30% discount to Asian peers). Hence, we maintain a Buy on Coal India with an unchanged PT of Rs. 185.