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About the stock: Coal India (CIL) is one of the largest coal producers in the world. In FY23, CIL produced 703 million tonnes (MT) while offtake for FY23 was at 695 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 has advanced technology in open cast mining

Q4FY23 Results: CIL reported a steady operational performance, post adjusting for the one off in employee costs.

* For Q4FY23, CIL reported offtake volume of 187 million tonnes (MT), up 4% YoY (our estimate of 187 MT). FSA sales volume was at 167 MT, up 12% YoY (our estimate of 165 MT), while FSA realisation was at | 1550/tonne, up 5% YoY (our estimate of | 1485/tonne). E-auction volume was at 16 MT (our estimate of 20 MT) while E-auction realisation for the quarter was at | 4526/tonne (our estimate of | 4250/tonne)

* For Q4FY23, CIL reported a consolidated topline of | 38152 crore, up 17% YoY and 8% QoQ (our estimate of | 38635 crore)

* Consolidated reported EBITDA was at | 6898 crore. During the quarter, employee benefit expense was at | 16983 crore, up 60% YoY, 47% QoQ. Employee cost for the quarter included | 5870 crore on account of provisioning towards wage revision of CIL’s non-executive manpower. After adjusting for the one -off in employee benefit expense, consolidated adjusted EBITDA was at | 12768 crore (our estimate of | 10625 crore). The ensuing consolidated reported PAT was at | 5528 crore

What should investors do? Coal India’s share price has given a return of ~42% over the last one year (from ~ | 166 in May 2022 to ~| 236 in May 2023).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value CIL at | 275, 4.5x FY25E EV/EBITDA.

Key triggers for future price performance:

* Going forward, for CIL, we assume coal sales volume of 750 million tonnes (MT) for FY24E and 800 MT in FY25E

* We expect CIL to report consolidated EBITDA margins of 23.0% for FY24E and 22.8% for FY25E

Alternate Stock Idea: In our metals and mining sector coverage, we like NMDC.

* Incorporated in 1958, NMDC is India’s largest merchant iron ore miner

* BUY with a target price of | 140

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