MOSL: COAL INDIA (Buy)-In-line-e-auction offset drag of power sector priority-Earnings CAGR of 30%; valuations attractive
Coal India: In-line; e-auction offset drag of power sector priority; Earnings CAGR of 30%; valuations attractive; reiterate BUY
(COAL IN, Mkt Cap USD28.6b, CMP INR300, TP INR401, 33% Upside, Buy)
- Coal India's (COAL) 3QFY18 revenue grew ~6% YoY to INR216b (2% miss) on ~7% YoY growth in offtake. FSA realization at INR1,182/t (down 8% YoY / 3% QoQ) missed our estimate of INR1,249/t, which we believe is due to lower dispatches to non-power customers (these fetch a premium). Preference was given to the power sector due to spike in demand. E-auction realization surprised positively, increasing 24% QoQ to INR1,998/t (our estimate: INR1,800/t), which finally reflected the rising price trend for 6-8 months.
- Adjusted EBITDA (ex-OBR) increased 19% YoY to INR55.4b (in-line) aided by slightly lower cost of production. Though we are keeping overall estimates unchanged, we have increased e-auction prices at the cost of FSA realization, accounting for temporary priority to the power sector.
Valuations attractive; reiterate BUY
- We believe COAL will continue to be the key fuel for electricity generation growth in India for 5-10 years at the least. Solar power is the only viable competition but its growth will be capped by land shortage and variability. Therefore, we believe COAL will be able to achieve 6-7% volume growth.
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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