01-01-1970 12:00 AM | Source: Geojit Financial Services Ltd
Large Cap : Coal India Limited For Target Rs.155 - Geojit Financial
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Decent performance; Outlook remains stable

Coal India is one of the largest coal producers in the world with coal production 602mt in FY20 and a target of 1000mt by FY23-24.

* In Q3FY21, consolidated revenue grew by 11.4% QoQ, as volumes increase due to demand recovery. FSA revenue increased by 9.2% QoQ to Rs. 16,674cr (down 7.4% YoY).

 * EBITDA increased by 29.9% QoQ while margin expanded by 340bps QoQ to 23.8% driven by higher revenue and other operating income. As a result, PAT also rose 4.7% YoY.

* Expected rise in power demand and improving volumes along with effective control over costs could drive the company’s performance in near-term. We reiterate our BUY rating on the stock with a rolled forward target price of Rs. 155 based on 4x FY23E EV/EBITDA.

Topline records sequential improvement

Coal India’s revenue grew by 11.4% QoQ to Rs. 21,708cr (+0.7% YoY) primarily aided by increased volumes on the back of strong demand in Q3FY21. FSA revenue posted a 9.2% QoQ increase to Rs. 16,675cr (-7.4% YoY) due to increase in volumes (+13.9% QoQ to 123mt), however realization dropped by 4.1% QoQ to Rs. 1,354/tonne. Eauction revenue grew by 24.3% QoQ to Rs. 3,996cr (+54.8% YoY) as volumes increased by 21.9% QoQ along with price realization (+2.0% QoQ). Washed coking coal revenue grew sharply by 141.3% QoQ to Rs. 252cr (+22.9% YoY) on higher volume (+240.0% QoQ), however realization dropped (-29.0% QoQ). Washed non-cooking coal revenue de-grew by 21.9% QoQ to Rs. 523cr (+25.7% YoY). Company’s total production increased by 36.4% QoQ to 157mt (+6.3% YoY), while offtake grew by 14.8% QoQ to Rs. 154mt (+8.7% YoY).

Margin expands on account of effective cost control

In Q3FY21, EBITDA increased by 29.9% QoQ to Rs. 5,165cr (+4.0% YoY) supported by margin expansion of ~340bps QoQ to 23.8%. EBITDA improved on the account of growth in revenue (+11.4% QoQ) and higher other income (+18.5% QoQ), partially offset by employee costs (+2.5% QoQ) and other expenses (+55.7% QoQ). Resultantly, Adj. PAT rose by 4.7% QoQ to Rs. 3,085cr (-21.4% YoY).

Key concall highlights

* Coal India is exploring different diversification projects and assured that capital risk will be minimal.

* Company is spending significant part of Capex in mechanizing the evacuation system, which would reduce operational costs and improve efficiency. Capex guidance for FY21 is at 13,000cr, of which 9,300cr is spent till Jan-2021.

* Management assured that increased provisions (Rs. 503cr in Q3FY21 vs. Rs. 354cr in Q2FY21) are mainly due to unrecovered dues from Government entities. So, they expect gradual recovery in the coming quarters.

Valuation

We expect the business to perform well in the short to medium-term, as the demand from power plants would witness sharp increase once their inventory levels deplete. The long-term outlook remains positive with improvement in realization and the ability of the company to protect margins by improving efficiency. We reiterate our BUY rating on the stock and roll forward our valuation with a revised target price of Rs. 155 based on 4x FY23E EV/EBITDA.

 

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