Coal India surges 4% post strong Q4 nos, brokerages see up to 26% upside

Coal India shares rallied as much as 4.11 per cent in the morning deals on Friday, a day after the company reported an impressive 362.46 per cent jump in its net profit at Rs 6,024.23 crore for the quarter ended March 31, 2019. 

At 10:35 am, the stock was trading at Rs 258.45 apiece on the BSE, up over 2 per cent against 0.52 per cent rise in the S&P BSE Sensex at 40,039 levels. 

The state-run coal mining company had posted a net profit of Rs 1,302.63 crore in the corresponding qurater of the previous fiscal year. 

The company’s net revenue rose 7.53 per cent to Rs 28,546.26 crore as against Rs 26,547.58 crore logged in the fourth quarter (Q4) of FY18.

“Better average realisation in both coal, Fuel Supply Agreement (FSA) and e-auction sales coupled with operational cost control propelled the company to its best ever financial performance. Importantly, coal quality variance was under control and we have been able to arrest the grade slippage to large extent”, a company official said.

Average realisation per tonne of coal in the FSA saw an 8 per cent increase to Rs 1,348 during 2018-19 from the previous level of Rs 1,243 during 2017-18. The overall average realisation per tonne of coal went up to Rs 1,529 during 2018-19 compared to Rs 1,398 on a year-on-year basis. CLICK TO READ FULL REPORT

Post the result announcement, most brokerages have turned bullish on the stock and see an upside of up to 26 per cent, given its attractive valuation and likely continuation of cost control measures. Brokerage Motilal Oswal Financial Services (MOFSL), for instance, says "Coal India has managed to keep its cost under control on the back of productivity measures and shutting down of old mines – we expect this trend to continue. Notably, cash CoP (cost of production) is down nearly 1 per cent over the last two years. Excluding the wage cost, the decline in cash CoP is even steeper."

Maintaining buy, the brokerage says the stock trades attractively at nearly 4x FY20E EV/adj. EBITDA (v/s historical average of 7x), P/E of nearly 8x (v/s average of ~14x) and offers a dividend yield of nearly 7-8 per cent. It values the stock on 5x FY20E EV/EBITDA (Enterprise value/earnings before interest, tax, depreciation and amortization) at Rs 307.

As per news reports, foreign brokerage firms Citi and CLSA have also 'buy' rating on the stock. Earnings outlook remain muted; however, Coal India offers an attractive dividend yield, they say. CLSA has hiked the target price to Rs 290 while Citi has set the target price to Rs 320 from Rs 300 earlier. 

Over the last 12 months, shares of Coal India have underperformed the benchmarks by slipping over 12 per cent. On the contrary, the S&P BSE Sensex has risen 14 per cent while the S&P BSE Energy has gained 24 per cent during the period, ACE Equity data shows.