Buy Coal India Ltd For Target Rs.472 Prabhudas Liladhar Capital Ltd
Cost inflation dents profitability
Coal India (COAL) reported EBITDA (ex-OBR) of INR102bn, down 9% YoY was 10% below our estimates, EBITDA was primarily impacted due to higher fuel and material costs. Following the results, we have cut our FY27/28E EBITDA estimates by ~4/5%, factoring higher operating expenses. Given that the costs are peaking, retain Accumulate rating with revised TP of INR472 (at 5.25x FY28E EV/EBITDA). In Q1FY27, the company declared a dividend of INR5.5/share we have estimated DPS of INR28 for FY27E (yield of 7%). We model modest volume growth of 2/3% YoY with EBITDA (exOBR) growth of 11%/5% YoY for over FY27/28E. COAL remains well positioned to benefit from sustained strength in power demand led by delayed monsoon, with ~80% of volumes linked to coal-based power generation.
EBITDA below estimates:
Revenue grew 8% YoY to INR463bn in 1QFY27, supported by 4% YoY growth in offtake to 198.2mt and improved blended realization (ASP), which increased to INR2,338/t from INR2,248/t in 1QFY26. E-auction dispatch contribution increased to 13% of total offtake (vs. 11% YoY), with realizations improving to INR3,085/t (vs. INR2,917/t YoY). Despite better realizations and a higher share of e-auction volumes, EBITDA (ex-OBR) declined 9% YoY to INR102bn, around 10% below our estimate, primarily due to higher material costs (mainly diesel/fuel) and increased contractual expenses. Consequently, EBITDA margin contracted 120bps YoY to 26.1%. PAT remained broadly flat YoY at INR88bn, supported by 26% YoY growth in other income and a lower effective tax rate, which partly offset the weaker operating performance.
Dividend outlook continues to be robust:
In Q1FY27, CIL declared its first interim dividend of INR 5.5/ share with the dividend payout ratio of 38% for the quarter. The company continues to maintain strong liquidity position, with cash reserves exceeding INR520bn (~18% of market Cap). we estimate FY27 DPS at INR 28/share, implying a dividend yield of ~7%. Based on FY26 PAT of INR347bn and assuming payout ratio of 53%, we expect total dividend distribution to be INR170bn, translating into a projected FY27E DPS of INR29.6 (vs. INR26.6 in FY26).
Non-coal diversification initiatives continue to scale:
COAL India continued to make steady progress on its diversification strategy during Q1FY27. The company advanced its coal gasification plans with the foundation stone laid for India's first commercial coal gasification project through the CIL–BHEL JV (BCGCL), entailing an investment of ~INR250bn and an annual capacity of 6.6 lakh tonnes of ammonium nitrate. In the renewable energy segment, CIL commissioned 200MW of the 300MW Khavda solar project in Gujarat and received the commissioning certificate for its 100MW Bhadramali solar plant, resulting in the company recording its first-ever revenue from energy sales (INR57mn) during the quarter. Additionally, BCCL commissioned a 2.0MTPA coal washery at Bhojudih, increasing its total coal washing capacity to 17.35MTPA, while production commenced at the ASGKCC mine under the revenue-sharing MDO model, further expanding its mining business initiatives.
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SEBI Registration number is INH000000933.
