 "CIL's prospects look better on rising volumes")
Going ahead, barring the near-term overhang of five per cent stake sale by the government, the company’s prospects look good. While analysts at Nomura had given a Buy rating a few days back with a target price of Rs 398, analysts at Morgan Stanley on Thursday have given an Overweight rating to the stock. “Possibility of another price hike in late FY14, steepening of volume growth trajectory starting H1FY15, and increasing dividend payments are the key premises for our positive stance medium term,” Morgan Stanley analysts said.
According to 16 analysts polled by Bloomberg since September this year, 11 have Buy rating whereas five have Hold rating with consensus target price of Rs 345 indicating an upside of 14 per cent from current price of Rs 302.55.
CIL’s provisional production and off-take (dispatch) numbers for the month of September are encouraging. The company was able to produce 33.2 million tonnes (mt) of coal, up 15 per cent year-on-year, primarily aided by capacity ramp-up at Mahanadi Coal (MCL) and Northern Coal (NCL) fields. Thus, cumulative production for the first six months of FY14 increased 4.7 per cent year-on-year to 220.5 mt; excluding September, production was up 3.3 per cent. At this (September) rate, analyst at Religare Capital Markets see the company clocking production of 474 mt in FY14, almost 5.5 per cent higher than 452 mt in FY13.
On dispatches front, September figures at 35.8 mt, too, were up 10 per cent year-on-year taking the cumulative first half number to 224.4 mt an increase of 4.5 per cent year-on-year. What’s more, these numbers suggest that full year targets now look more achievable. The company is targeting coal dispatches of 492 mt in FY14 compared to 465 mt in FY13. Given the recent figures, while analysts at Religare believe that full year dispatch target may be achievable, analysts at Morgan Stanley see it falling slightly short by about five-six mt. Nevertheless, dispatches of anywhere between 485 and 492 mt will still be four-six per cent higher than 465 mt in FY13, thereby supporting CIL’s topline growth.
Realisations up
The price hike undertaken during May this year for coal supplied under FSA (fuel supply agreement) supplies bodes well. In this backdrop, Abhisar Jain at Centrum Broking estimate Coal India’s second quarter performance to get a boost. Analysts at Morgan Stanley had estimated price hikes to boost Coal India’s average realisations by 5.3 per cent in FY14 and 6.4 per cent in FY15.
On the other hand, while e-auction prices at Rs 2,232 a tonne (year-to-date average) were down 15.8 per cent compared to the first five months of previous year (as per analysts at Religare), higher e-auction volumes (up 20 per cent to 19.6 mt during the same period) should off-set most of the loss due to price decline. Moving forward and though e-auction accounts for less than a fifth of total volumes, the trend in e-auction prices needs to be watched as any meaningful decline could shave-off some gains from volume increase in FSA and e-auction.
Initially, the government had planned to sell 10 per cent of its stake in Coal India. But, due to pressure from employee unions, the Street believes it is likely to have toned down.
Analysts at Nomura feel that the government is likely to go with a combination of “five per cent offer for sale/buyback” and “higher special interim dividend” to meet its ‘Budgeted’ proceeds from disinvestment in Coal India in FY14. However, there is no formal proposal of a ‘share buyback’ from the government and no board meeting has been scheduled yet to discuss the same. Analysts at Nomura add that independent directors would need to be appointed (likely by end of October) before any decision on a buyback/special dividend (if proposed) can be approved by the Board. Until clarity emerges, the divestment proposal can keep pressure on the stock prices.