Coal India - Earnings headwinds unlikely to recede - Emkay

Reco: REDUCE
CMP: Rs 326
Target Price: Rs 320

- CIL's profitability to be impaired due to: a) mix changing in favour of low-margin power, b) declining spot coal prices for its market-linked segment and c) waning incentives

- Not many options with CIL to offset this, as 1) We see limited possibility for further price given the elections and 2) CIL to fall short of power sector trigger levels even at 7% dispatch growth, removing possibility of increased e-auction volumes

- EPS CAGR of 4.5% in FY13-15E vs 25% in FY11-13. Third party sampling which might bring in negative surprises leading to lower average realizations to be another pricing blow for CIL

- While stock's de-rating partially factors in concerns, absence of meaningful earnings revival catalyst, stock is unlikely to see reversal of this de-rating. Initiate with Reduce TP Rs320

Source : Equity Bulls

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