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Hold Coal India Ltd For Target Rs.275 - ICICI Direct
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Mixed bag performance...
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 for FY22 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 has advanced technology in open cast mining
Q2FY23 Results: CIL reported a mixed bag performance in Q2FY23.
* For Q2FY23, Coal India reported off take volume of 155 million tonnes (MT), up 5% YoY. FSA sales volume for the quarter was at 142 MT, up 20% YoY, while FSA realisation for the quarter was at | 1414/tonne, up 2% YoY. Eauction volume for the quarter was at 10 MT while E-auction realisation for the quarter was at | 6062/tonne, up 281% YoY, 40% QoQ
* For Q2FY23, Coal India reported consolidated topline of | 29838 crore, up 28% YoY. Consolidated EBITDA for the quarter was at | 7280 crore, lower than our estimate of | 8878 crore. Consolidated EBITDA came in lower than our estimate due to higher than expected operating costs (especially employee expenses). Employee expenses for the quarter was at | 10829 crore, up 13% YoY, 8% QoQ, higher than our estimate of | 10078 crore. Ensuing consolidated PAT for the quarter was at | 6044 crore
What should investors do? Since our report dated February 18, 2022, CIL’s share price has given a return of ~53% in the last nine months (from ~| 167 in February 2022 to ~| 256 in November 2022), thereby significantly outperforming the Nifty Metal Index which has given return of ~ 10% during the above mentioned period.
* We downgrade the stock from BUY to HOLD. On the back of higher operating costs, going forward we believe Coal India’s EBITDA/tonne is likely witnesss a declining trend from H1FY23 levels.
Target Price and Valuation: We value CIL at | 275, 4.5x FY24E EV/EBITDA
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