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Equirus Securities
Target: ₹171
CMP: ₹₹113.30
Coal India’s September production/sales volumes were up 31.5 per cent y-o-y/31.6 per cent y-o-y, with this sharp increase driven off a low September 19 base.
We expect muted demand for coal in H2-FY21 due to high stocks at power plants and high company-level inventory, which will restrict production growth. E-auction premiums have moderated in H1-FY21E and with low demand, premiums are unlikely to rise in H2-FY21E.
CIL posted production/sales volumes of 115.05/134.2 mt (million tonnes) in Q2-FY21. E-auction premiums fell to 18 per cent in July-August 2020 vs 40 per cent in Q2-FY20. We estimate e-auction volumes to rise by close to 30 per cent to 20 mt in Q2-FY21 and blended realisations to decline by close to 2 per cent y-o-y to ₹1,596/t due to a sharp drop in e-auction premiums. Adj. EBITDA is likely at ₹315/t vs ₹347/t in Q2-FY20.
We believe the renewables share of the energy mix will expand continuously; hence, the long-term outlook for the company is likely to be negative. In our DCF model, we have assumed a terminal growth rate of zero per cent since we believe incremental growth in domestic demand will be met by renewables 6-7 years from now (as evident from global trends).
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