Tight e-auction supplies due to diversion of coal to power utilities and pick-up in demand from end-use sectors (cement and others) should support these prices further, say analysts. Those at Kotak Institutional Equities expect further improvement in realisation during FY19, on the back of the full benefit from introduction of an evacuation facility charge, as well as revision in the notified prices of coal.
The company achieved 6.8 per cent volume growth in FY18 to 580.29 million tonnes and is targeting 650 mt for FY19. Expected to be driven by healthy demand from the power sector, as well as from non-power users. Although analyst estimates are expecting only about 620 mt of volumes, keeping in mind railway wagon availability and other issues, they still see a stronger upside in profitability. Analysts at IIFL say evacuation charges and price hikes would add Rs 89 billion to revenue. This is in addition to volume growth.
Employee costs would also be lower on a year-on-year basis, as the company will not have any one-offs and prior period items (about Rs 80 bn) as seen in FY18. IIFL believes these factors would lead to operating profit more than doubling in FY19.
Analysts at Jefferies, too, have raised their FY19-20 estimates for Ebitda (earnings before interest, tax, depreciation and amortisation), after factoring in higher FSA realisation and e-auction prices. They expect earnings to grow 20 per cent annually over FY18-20. IIFL, which issued a ‘buy’ recommendation (titled ‘At inflexion point’) on Coal India, believes most of the negatives are already built into the stock. And, that the valuation of 5.3 times the FY20 enterprise value to Ebitda estimate, is attractive. The target price estimate for the stock of IIFL, Edelweiss, Kotak and Jefferies of Rs 325-369 is 10-25 per cent higher from the current level.