HDFC Securities
Coal India (Buy)
Target ₹305
CMP: ₹276.20
Coal India’s second quarter FY18 results were below estimates (EBITDA at ₹619 crore vs estimated ₹1,465 crore. The miss was mainly driven by higher employee expenses (₹9,155 crore, which also included a provision of ₹2,300 crore towards wage settlement, finalised in October 2017.
Contractual expense, the other key cost head, was sharply lower at ₹2,552 crore. This might indicate lower pre-stripping and is likely a one-off.
CIL continues to clock strong volume growth. This is likely to continue till the coal stocks at power plants stabilise at required levels (Normative: 21 days, Actual 6 days on November 9, 2017). Higher alternative fuel prices will continue to help e-Auction realisations (2Q-FY18 premium vs FSA: 32 per cent).
CIL may also take Fuel supply Agreement. price hikes in near future given the steep discounts to alternatives . At 7.4/6.5 multiples for FY19/20 EV/EBITDA, the upside is limited.