MOSL: COAL INDIA (Upgrade to Buy)-Volume growth to accelerate-E-auction price rising, NSR already reflects grade slippage
​Coal India: Volume growth to accelerate; E-auction price rising, NSR already reflects grade slippage; Upgrade to Buy
(COAL IN, Mkt Cap USD26.8b, CMP INR279, TP INR335, 20% Upside, Upgrade to Buy)
COAL's dispatch growth to accelerate despite substitution by RE
- ​Apparent coal demand growth has disappointed with a decline of 2.4% in FY17 due to destocking, efficiency gains, substitution (pet coke) and pick-up in renewable power generation. However, real consumption growth remains robust (e.g., 5% growth in the power sector).
- We are positively surprised with pick-up in RE projects, and are thus upgrading capacity target by 30GW to 110GW at the end of FY20E. On adjusting our power supply and coal supply models, we have reduced Indian apparent coal demand estimates by 52mt to 918mt for FY20. We note that apparent coal demand will still increase at a CAGR of 5.4% over FY17-20E, compared to flat demand over last two years.
- Despite reducing estimates by 16mt and 24mt, we note that Coal India's dispatches will increase by 6.8% to 580mt in FY18E and by 6.6% to 618mt in FY19E, driven by end of destocking and substitution of coal and pet coke imports, despite a rising share of RE in power generation.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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