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Healthy traction in volume augurs well…

About the stock: Coal India (CIL) is one of the largest coal producers in the world. In FY22, CIL produced 623 million tonnes (MT) while offtake was at 662 MT.

• CIL has 345 mines (as on April 1, 2021) of which 151 are underground, 172 open cast and 22 mixed mines

• CIL has extensive mining capabilities. It possesses advanced technology in open cast mining

Key Updates:

• Coal India reported production and offtake volume for March 2023 and for FY23. For March 2023, CIL reported production volume of 83.5 million tonnes (MT), up 4% YoY, while offtake volume for March 2023 was at 64.2 MT, up 3.4% YoY

• CIL has slightly bettered its FY23 production volume target of 700 MT. For FY23, CIL’s production volume was at 703.2 MT, up 12.9% YoY while offtake volume for FY23 was at 694.7 MT, up 5% YoY

• For FY24, CIL has given a production and offtake target of 780 MT. Of this, 610 MT is likely to meet the power sector’s demand. Hence, going forward, availability of coal for the non-regulated sector (which includes e-auction volumes) is likely to increase notably in FY24 when compared with FY23. This augurs well for CIL’s e-auction volumes for FY24E

What should investors do? CIL’s share price has given a return of ~30% in the last 12 months (from ~| 172 in April 2022 to ~| 223 levels in April 2023).

• Coal India reported healthy growth in volume for FY23 wherein it slightly bettered its production volume guidance of 700 MT. Going forward, we expect healthy traction in volumes to continue. Hence, we upgrade the stock from HOLD to BUY

Target Price and Valuation: We value CIL at | 260, 4.5x FY24E EV/EBITDA.

Key triggers for future price performance:

• Over FY22-24E, we expect CIL’s consolidated topline to grow at a CAGR of 7.9% while consolidated EBITDA and consolidated PAT are expected to register a CAGR of 13.5% and 16.4%, respectively

• We expect CIL to report consolidated EBITDA margins of 30.9% for FY23E and 24.9% for FY24E (EBITDA margin of 22.5% for FY22)

Alternate Stock Idea: Besides Coal India, we also like NMDC.

• NMDC is one of the lowest cost iron ore producer in the world.

• BUY with a target price of | 140

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