 "Coal India: Higher e-auction sales, overall output to boost profitability")
News of the coal ministry removing the cap on Coal India’s e-auction sales enthused investors, leading to a 5.7 per cent jump in its stock, which closed at Rs 380 on Wednesday.
These sales fetch higher realisation and add to profitability. These were capped at seven per cent of overall volumes by the government, to meet input requirements of the power sector. Now, the government has allowed Coal India to revert to the earlier system of no cap on e-auction.
In the past, e-auction volumes have hovered at 10-12 per cent of the total. While a small part of overall volumes, e-action sales contribute 35-40 per cent of total Ebitda (earnings before interest, taxes, depreciation and amortisation). Hence, higher e-auction volumes would mean higher profitability, leading to earning upgrades.
Hence, they believe there exists an upside risk to earnings with respect to the e-auction volume in FY16 and FY17. Hence, they’ve raised their target price for the stock from Rs 415 to Rs 425. In this backdrop, one may also see some upgrades in the Bloomberg consensus target price that stood at Rs 392, from analysts polled in March.
The coal ministry’s decision also seems to have been influenced by the fact that Coal India is seeing inventory build-up. During FY15, while output was 494 mt, 97 per cent of the production target, offtake was 489 mt, about 94 per cent of the targeted 520 mt, partly due to evacuation issues. The demand for e-auction coal, however, has been increasing from players which had lost captive mines or do not have captive supplies. Analysts believe even if the newly allocated mines start contributing about 40 mt in the first year and continue growing their output, it would still take a few years to fill the gap between domestic demand and availability.
Currently, India imports 150 mt yearly. Rising power generation capacities and the need to feed existing underutilised plants mean the gap will remain. The government has set ambitious targets for Coal India, the country’s monopoly miner. The production target is 550 mt for FY16 and a billion tonnes for 2020.
Though some overhang of the government’s divestment of stake in the company might lead to temporary blips in the stock, analysts believe Coal India remains a good long-haul story.
Meanwhile, for the quarter ending March, analysts at Centrum Broking expect sales to increase 4.1 per cent year-on-year to Rs 5,386 crore, with Ebitda growing 5.5 per cent on the back of some improvement in e-auction volumes. Net profit is expected to rise 6.6 per cent to Rs 4,727 crore.
These sales fetch higher realisation and add to profitability. These were capped at seven per cent of overall volumes by the government, to meet input requirements of the power sector. Now, the government has allowed Coal India to revert to the earlier system of no cap on e-auction.
In the past, e-auction volumes have hovered at 10-12 per cent of the total. While a small part of overall volumes, e-action sales contribute 35-40 per cent of total Ebitda (earnings before interest, taxes, depreciation and amortisation). Hence, higher e-auction volumes would mean higher profitability, leading to earning upgrades.
Hence, they believe there exists an upside risk to earnings with respect to the e-auction volume in FY16 and FY17. Hence, they’ve raised their target price for the stock from Rs 415 to Rs 425. In this backdrop, one may also see some upgrades in the Bloomberg consensus target price that stood at Rs 392, from analysts polled in March.
The coal ministry’s decision also seems to have been influenced by the fact that Coal India is seeing inventory build-up. During FY15, while output was 494 mt, 97 per cent of the production target, offtake was 489 mt, about 94 per cent of the targeted 520 mt, partly due to evacuation issues. The demand for e-auction coal, however, has been increasing from players which had lost captive mines or do not have captive supplies. Analysts believe even if the newly allocated mines start contributing about 40 mt in the first year and continue growing their output, it would still take a few years to fill the gap between domestic demand and availability.
Currently, India imports 150 mt yearly. Rising power generation capacities and the need to feed existing underutilised plants mean the gap will remain. The government has set ambitious targets for Coal India, the country’s monopoly miner. The production target is 550 mt for FY16 and a billion tonnes for 2020.
Though some overhang of the government’s divestment of stake in the company might lead to temporary blips in the stock, analysts believe Coal India remains a good long-haul story.
Meanwhile, for the quarter ending March, analysts at Centrum Broking expect sales to increase 4.1 per cent year-on-year to Rs 5,386 crore, with Ebitda growing 5.5 per cent on the back of some improvement in e-auction volumes. Net profit is expected to rise 6.6 per cent to Rs 4,727 crore.