MOSL: COAL INDIA (Buy)-Targeting production of 1 billion ton by 2024/25-Coal to remain the dominant energy source in India
Coal India: Targeting production of 1 billion ton by 2024/25; Coal to remain the dominant energy source in India
(COAL IN, Mkt Cap USD22.5b, CMP INR255, TP INR310, 21% Upside, Buy)
Coal India (COAL) hosted its annual investor meet on 17th Jun’19. Key highlights:
Growth potential remains strong
According to COAL, India will continue depending on coal to secure its energy needs over the next 10-20 years, particularly considering the country’s low per capita electricity consumption and the government’s focus on assuring ‘24x7’ power supply. The company expects production to reach 1b ton by 2024-25 (FY19: 0.6bt) due to the need for more conventional supplies until better storage technologies for renewables are developed. Moreover, it sees scope for substituting ~130-150mt of the country’s imported coal with domestic coal. Although the growth potential remains strong, COAL highlighted that coal demand will likely plateau at ~1.5b ton per annum over the long term.
Evacuation infra in place for near-term growth
COAL is targeting production of 660mt (+9% YoY) in FY20, implying incremental annual production of 53mt (exhibit 1). SECL, MCL and CCL together would constitute 37mt of this increase. The company noted that works on critical rail infrastructure are progressing well and that it is confident about meeting higher evacuation needs from these mines. The Jharsugda-Barpalli line has been commissioned and can handle up to 10-12 rakes (~15mtpa), as against 5-6 rakes currently. The Tori-Shivpur single line is operational and has capacity to handle 10 rakes per day (v/s six rakes currently). Works on the two lines in Chhattisgarh too are progressing well, and the first phase of the first line has been commissioned. COAL expects these two lines to commission by 2020-21 with evacuation capacity of 30-40mt. Moreover, the company is undertaking doubling of lines at Jharsugda-Barpalli and Tori-Shivpur.
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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