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Emkay Global
Coal India (Buy)
CMP: ₹307.9
Target: ₹359
Coal India (CIL) has changed its pricing policy and has rationalised prices across grades, resulting in an average price hike of 9 per cent. This is expected to increase revenue by ₹6,400 crore annually (₹1,950 crore for remaining part of FY18).
This move will fully offset the adverse impact of wage revision. However, post the price hike, coal prices (ex-inland transportation cost) are still 50-60 per cent cheaper compared to imports. Also, e-auction prices are likely to improve.
Most of the concerns such as grade slippage, e-auction price decline, lower volume growth and wage hikes have abated. We expect business performance to improve with a pick-up in power demand.
Dividend yield at 6-7 per cent is attractive. We expect dispatches to grow by 5 per cent in FY19, e-auction price to improve and FSA to remain stable. Accordingly, we upgrade our recommendation to ‘buy’ with a revised target price of of ₹359.
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