Coal India - Positives in store - Edelweiss

Coal India (CIL) indicated that MOEF approvals for 45mtpa expansion are virtually completed as part of the proposal to hike capacity by 25%. With this, CIL can potentially produce 500mt in FY14 (our current estimate: 474mt). This approach provides improved visibility of meeting FY17 production target of 615mt (volume CAGR: 7.5%). CIL Chairman has indicated possibility of coal price hike around March 2013. Key negative is the fall in e-Auction volume of ~4mtpa going forward. However, our FY14E estimates are broadly intact led by 1% upward revision in volumes and 1.5% cut in costs. We maintain our DCF-based TP at INR410/share. Assuming an FY17 production of 615mt (our estimate: 547mt) causes our TP to increase to INR442. Maintain 'BUY'.

MOEF approvals for hike in existing capacity are in the bag

Our interaction with CIL indicates MOEF approvals for 45mtpa capacity expansion are virtually completed. This is part of the proposal for providing blanket approvals to hike existing capacity by 25%. CIL is confident of achieving similar approvals and now has improved visibility on its FY17 production target of 615mt by FY17 (our estimate: 549mt).

Possibility of price hike

CIL's Chairman has indicated a possibility of price hike around March 2013. CIL has not hiked prices for low-grade coal for most power consumers since October 2009.

E-auction volumes to decline by ~4mtpa

CIL indicated that e-Auction volumes are expected to decline by 4mtpa YoY in FY13. We had considered flat volumes and cut the same by ~9%/~13% for FY13E/FY14E.

Outlook and valuations: Positives in store; maintain 'BUY'

We broadly retain our FY14E estimates but cut FY13E EPS by ~3% led by cut in e-Auction volumes. Retain 'BUY/SP' with TP of INR410. At CMP, stock trades at 7.3x FY14E EV/EBITDA.

Source : Equity Bulls

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