Coal India Ltd’s (CIL) stock slid ~17% over last six months, pressured by declining volumes and continuous stake sale by government through ETFs. A consistent fall in the Maharatna’s H1FY20 volumes was due to strikes at some subsidiaries, heavy monsoon impacting output and evacuation due to disruption of roads, etc. Contrary to our earlier view of volume recovery October onwards, we now estimate ~20% decline even in October. As a result, we have cut our FY20E/FY21E EBITDA by 19%/10%, respectively, to factor in lower volumes; our target price too has been revised downwards to Rs246/sh (earlier Rs282), now valuing the stock at 5.0x FY21E EV/EBITDA. We reiterate our Outperformer rating on the stock.
Reiterate Outperformer with reduced target price of Rs246
Though the volume decline in CIL could be temporary, it would nonetheless adversely impact FY20E profits. We expect CIL to revert to volume growth in FY21E (6% yoy to 634mt) on a lower base in FY20E (598mt). Our estimate of Rs20/sh of dividend for FY20E implies a dividend yield of ~10%. Any indication of the government halting share sale would have a positive bearing on the stock. We value CIL at 5.0x FY21E EV/EBITDA to arrive at our revised target price of Rs246/sh.
Coal India is engaged in the identification, exploration, and production of coal in India. Co. offers coking coal primarily for use in steel making and metallurgical industries, and for hard coke manufacturing; semi coking coal for use as blend-able coal in steel making, merchant coke manufacturing, and other metallurgical industries; NLW coking coal for use in power utilities and non-core sector consumers; non-coking coal for use as thermal grade coal for power generation, as well as for cement, fertilizer, glass, ceramic, paper, chemical and brick manufacturing, and for other heating applications.
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