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Coal India’s decision to pay out an interim dividend of Rs18,317.46 crore will improve the company’s return ratios.
Its return on equity is likely to increase by six per cent for the financial year ending in March 2015, according to a Barclays Securities note authored by Chirag Shah and Ankur Niyogi.
“Coal India's board today approved an interim dividend of Rs29/share. We believe this is positive not only because this is RoE accretive (+6% FY15E RoE) but also because it addresses investor concerns over capital allocation and cross holdings in other public sector companies,” said the note entitled ‘Large dividend payout addresses several investor concerns’ and dated 14 January.
Recent environmental clearances also bode well for the company, added the note.
“On a separate note, the Ministry of Environment and Forests has cleared 23 projects that were pending approval and also eased norms on capacity expansion for existing mines,” it added.
Barclays has an overweight rating on stock with a 12-month target of Rs.363 inclusive of dividend.
Investors had been concerned about the deployment of cash towards projects which did not match the company’s return profile, according to Barclays. The concern has been addressed by the payout to an extent. It expects RoE to improve from 29 per cent to 35 per cent post the dividend.
