Buy Coal India Ltd for the Target Rs.500 by Motilal Oswal Financial Services Ltd
Revenue in line; EBITDA beat over lower cost
* Revenue for 3QFY26 came at INR349b (-5% YoY and +16% QoQ) against our est. of INR345b. The decline was mainly led by muted volume during this fiscal.
* Adj. EBITDA (excluding OBR exp) stood at INR100.7b (-12% YoY and +72% QoQ) against our estimate of INR92b in 3QFY26. The EBITDA/t improved to INR534 (-10% YoY and +52% QoQ) vs our estimate of INR492/t.
* APAT came in at INR89.2b (+5% YoY and +105% QoQ) against our est. of INR65b during the quarter. Strong operational performance, higher OBR credit and lower tax outgo drove sharp jump in APAT. The Board of Directors approved the upgradation of pay scales of executives (up to mid-level] across the Company. The financial impact arising from such upgradation is payable with effect from 23rd August 2023. The total estimated financial impact of the said upgradation amounting to INR22b has been included in the consolidated financial results, for the quarter. For like-to-like comparison, we have adjusted this as exceptional item.
* Production for 3QFY26 stood at 200.1mt (-1 YoY and +37% QoQ), and offtake stood at 188.7mt (-3% YoY and +14% QoQ).
* FSA revenue stood at INR248.5b (-4% YoY and +14% QoQ), with volumes at 165.1mt (-3% YoY and +12% QoQ) and ASP at INR1,505/t (flat YoY and +2% QoQ) during the quarter.
* E-auction revenue came in at INR48b (-8% YoY and +35% QoQ), with volumes at 19.5mt (+1% YoY and +27% QoQ) and realizations at INR2,435/t (-9% YoY and +6% QoQ), translating into a premium of 62% during the quarter (vs. 76% in 3QFY25).
* In 9MFY26, production and offtake volume stood at 529mt (-3% YoY) and 546mt (-3% YoY), respectively. Revenue and EBITDA declined 3% and 10% YoY to INR1,010b and INR270b, respectively, in 9MFY26. Meanwhile, Adj. PAT declined 15% YoY to INR220b in 9MFY26.
* The company declared a third interim dividend of INR5.50/share in 3QFY26, totaling to 21.25/share in 9MFY26
Valuation and view
* Coal India (COAL) delivered decent performance, mainly supported by volume recovery, where e-auction volumes accounted for ~10% of total volumes and premium stood at 62% in 3QFY26.
* For FY26, we increased our APAT estimates by 14% to incorporate the performance beat, while we maintained our FY27/28 estimates. Going forward, we believe e-auction volume and premium will recover, supported by demand recovery and depleting inventory at both mine and power plant levels
* We expect COAL to clock a 2% volume CAGR over FY25-28. This is expected to translate into a CAGR of 6% in revenue/EBITDA, supported by the rising share of non-FSA and washed coal. The company’s focus on increasing coal-washer capacity will improve its market share in domestic coking/non-coking coal. Further, management remains focused on expanding its coal mining operations, which will be funded through internal accruals. COAL may, however, consider raising debt to undertake strategic diversification projects such as RE facilities and coal gasification.
* At CMP, the stock is trading at 4.9x EV/EBITDA and 2.1x P/BV on FY27E. We reiterate our BUY rating with a TP of INR500 (premised on 5.5x EV/EBITDA on Sep’27 estimate).
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