 "Workers clear a track in a railway coal yard on the outskirts of Ahmedabad")
With the divestment news cropping up once again, Coal India touched a 52-week low of Rs 274.6 on April 6 (Wednesday). It now trades at Rs 280 levels. Looking at the good fundamentals and strong dividend yield, any weakness in the price is a good opportunity for investors to accumulate the stock.
The company expects strong ramp-up in volumes. While volumes might have been soft for March (production and dispatches growth of 3.4 and 3.5 per cent, respectively), full-year growth was strong. For FY16, the firm’s production and dispatches at 536.5 million tonnes (mt) and 532.3 mt have registered a growth of 8.6 per cent and 8.8 per cent, respectively, over FY15. Analysts expect the growth momentum to continue in FY17. Those at Nomura forecast production and dispatches growth of eight per cent to 579 mt and 575 mt, respectively, for FY17. The government is committed to increasing supplies from Coal India, and better railway network and improved rake availability bode well for the reduction in bottlenecks for coal evacuation. Railway rake availability in February was up 4.1 per cent to 227 rakes a day compared to 218 the same month last year.
The volume ramp-up bodes well for the company’s sales in open market through e-auction, which is more profitable than sales under fuel supply agreement to power companies. With higher production, the product mix also improves. Analysts at Motilal Oswal Securities said in an April 4 report that e-auction realisation in February was up three per cent (Rs 50/tonne) month-on-month to Rs 1,773/tonne.The company expects strong ramp-up in volumes. While volumes might have been soft for March (production and dispatches growth of 3.4 and 3.5 per cent, respectively), full-year growth was strong. For FY16, the firm’s production and dispatches at 536.5 million tonnes (mt) and 532.3 mt have registered a growth of 8.6 per cent and 8.8 per cent, respectively, over FY15. Analysts expect the growth momentum to continue in FY17. Those at Nomura forecast production and dispatches growth of eight per cent to 579 mt and 575 mt, respectively, for FY17. The government is committed to increasing supplies from Coal India, and better railway network and improved rake availability bode well for the reduction in bottlenecks for coal evacuation. Railway rake availability in February was up 4.1 per cent to 227 rakes a day compared to 218 the same month last year.
This is also positive at a time when coal prices internationally are down. Motilal Oswal Securities analysts say the impact on margin will be limited due to increase in share of more profitable non-power volumes. They estimate 10 per cent annual compound growth in volumes over the next five years. This, along with operating leverage, will help improve adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) per tonne from Rs 403 per tonne in FY16 to Rs 503 per tonne by FY20. This translates into a yearly compound growth of 14 per cent in adjusted Ebitda for FY16-20.
Analysts at Nomura remain positive, with target price of Rs 401. On FY18 adjusted earnings, the stock trades at nine times price-earnings (earnings per share: Rs 31.9) and 5.3 times enterprise value/Ebitda (9.8 times P/E and 5.6 times EV/Ebitda on reported earnings).
