Prabhudas Lilladher

Coal India (Hold)

CMP: ₹249.65

Target: ₹270

Coal India FYTD volume growth slowed to 5.5 per cent, while the growth in August-December 2018 was mere 1 per cent despite severe shortage of coal, led by improved demand from power sector and pick-up in economic activity.

Overall volumes growth would remain weak for rest of FY19e and FY20e due to poor rail connectivity at newly commissioned mines and peaked out road/belt route. We factor in 4.8 per cent/5.5 per cent growth in FY19e/FY20e.

As happened in the past, margin rich e-auction volumes faced the brunt to meet the volumes tied-up in power and non-power FSAs. E-auction volumes/month fell by about 65 per cent in October-December 2018 to 2 million tonnes (mt) against average 60 mt.

Given the limited buffer for E-auction due to strong demand in FSA and low production growth, we expect e-auction volumes to fall to four-year low at 65 mt/60 mt in FY19-FY20e. Led by weak operational performance and rising headwinds due to government policy on opening up the sector.

We trim our multiple by 9 per cent to 10xFY20e P/E and downgrade the stock to ‘hold’ with TP of ₹270 (₹330 earlier).

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