Coal India - Hikes Coal Prices of Western Coalfi elds by 10% - Karvy

MCap: US$29,791mn; CMP: Rs 289; TP: Rs363

The Board of Directors of Cola India (CIL) has approved 10% hike in the prices of non-coking coal mined by Western Coalfields (WCL). Also earlier 10% hike on notified price for subsidiaries other than WCL applicable with effect from May 28, 2013. Second decision on revision of raw non-coking coal sizing charges and rapid loading charges is with effect from December 17, 2013. However, the Board didn't take up the issue of a special dividend and same could be taken up in Feb'14.

Financial Implication of Price Hike

WCL produced ~42 MT of coal, which is ~9% of CIL's annual production in FY13. With this hike, WCL will earn ~Rs 1.39billion additional revenue for the balance period of FY14, while hike in sizing charges and rapid loading charges will contribute Rs 1.97billion to CIL's top-line.

- Q2FY14 refl ects complete gain of price hike on May 28, 2013.
- CIL has revised and rationalized the basic notifi ed prices of all the grades of non-coking coal except GI, G2 & G5.
- CIL is expected to get Rs 24.55 billion additional revenue in FY14 on account of revision in dry fuel prices & loading charges.

Outlook & Valuation

We expect CIL's revenue to grow at 7.1% CAGR over FY13-15E, while its RoE & RoCE would remain higher owing to higher realization, margins and optimum utilization of assets. With a cash balance of Rs 700 billion, we expect CIL to increase its dividend payout in the next two years given its huge cash-flows and low capex requirement. Though we expect near-term price performance to remain weak – as disinvestment overhang plays out – we don't see OFS price signifi cantly lower than the current price. We see marginally positive impact of Rs 0.3 per share due to additional revenue on account of price hike in FY14E, while we have already factored in the price hike in estimates for FY15E.

Valuing CIL at 12x P/E FY15 EPS of Rs 30.3, we reiterate our "BUY" recommendation on the stock with a target price of Rs 363 per share.

Source : Equity Bulls

Keywords