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Centrum Broking
Coal India (Buy)
Target: ₹252
CMP: ₹184.4
News: Amid ongoing temporary deficit of coal in India, Coal India has been advised to prioritise coal supply to the power sector and not conduct any further e-auction of coal to the non-power sectors till the situation normalises. It can conduct special forward e-auction for the power sector.
Details: At FY21-end, Coal India had nearly 100 mt (78 mt at March 2020-end) of coal inventory as power producers refrained from taking adequate coal, keeping their inventory at low levels in anticipation of lower power demand amid increasing Covid cases. This led Coal India to produce less in Q1-FY22 (up 2.5 per cent y-o-y on a low base), liquidating its inventories.
With rising demand, Coal India started producing more from July but was hit by heavy rains in September, which affected production and offtake. Moreover, power demand increased with easing of Covid cases and coal imports also reduced (global prices increased 3x in a year by September 2021), which led to coal shortage in India. We see the stoppage of e-auction volume to non-power sector as temporary and do not see any risk to our estimates. Volume growth is there in H2-FY22 (expect about 9 per cent growth v/s H1-FY22), with end of monsoon. Receivable days have been declining (down about ₹6,000 crore in H1-FY22). The stock trades at about 11 per cent dividend yield and 2.6x FY23E EV/EBITDA.
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