Coal India - Strong inch-up in performance to drive the stock upward - Consortium

Coal India (CIL) further bettered its off-take in January 2013 by despatching coal at the rate of 1.39m tonnes/day (v/s 1.36mt in Dec 2012) despite challenging weather conditions. We expect the run-rate to continue for the rest of the financial year on the back of strong outlook on availability of railway rakes and peak activity likely in February and March 2013. However, weakness in e-auction segment remained a cause of concern.

Momentum strong enough to touch 460m + tonnes off-take: Thanks to strong activity in loading through railway rakes (~204/day) and MGR (100% utilisation), off-take/day rose to 1.39m tonnes/day. Our channel checks in railways suggest elevated targets in the range of 215-217 (PLe:205) rakes/day for rest of the financial year. This poses upside risk to our FY13 off-take estimate of 460m tonnes by 3-4m tonnes.

E-auction premium at year low in December: E-auction premiums fell to year-low levels of 34% in December on the backdrop of weak demand across the sectors. Volumes sold under auction were down ~16% during the month. We expect rise in volumes and realisations on the back of seasonal pick-up in demand during the quarter and rising international prices.

Valuation and Outlook: The current expansion in off-take reinforces company's ability to achieve its guided off-take target of 487m (+6%) tonnes in FY14. Achievement of targets would ease the concerns on CIL's ability to increase prices, going forward. However, we assume marginal increase in realisations by 2% in FY14, given the election year. Contrary to FY14, we expect sharper increase of 4% in FY15. This would drive 11-12% earnings growth in FY13-15. We raise our TP to Rs400 rolling over to FY15E earnings at 6.5x EV/EBITDA.

Source : Equity Bulls

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