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Emkay Global
Coal India (Buy)
Target: ₹208
CMP: ₹135.65
Dispatches have increased for the fourth consecutive month in August 20 to 44 mt (43 mt in July, 42 mt in June, 40 mt in May and 39 mt in April). We expect production and dispatch to pick up after the monsoon.
EBITDA missed our estimates, dragged by high contractual and fuel costs. Contractual expenses came in at ₹3,520 crore (+6 per cent y-o-y/-22 per cent q-o-q), significantly above our estimate of ₹1,830 crore. Fuel cost at ₹600 crore was also 16 per cent higher than the estimate.
Overburden removal (OBR) expenses stood at -₹250 crore, which is significantly lower than the estimate of ₹800 crore. The lower-than-expected OBR expenses help partly offset high contractual and fuel costs.
The stock is currently trading at 3x FY22E EBITDA. We expect restoration of a 20 per cent mark-up on e-auction prices from October 20 dispatches (provided demand recovers), which should trigger the next round of uptick in the stock.
We maintain Buy with a target price of ₹208.
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