Broker's call: Coal India (Buy)

Updated on: Nov 27, 2021

ICICI Securities

Coal India (Buy)

Target: ₹234

CMP: ₹155.85

Coal India’s (CIL) focus continues to be on meeting the power sector’s demand for coal. With a current despatch run-rate of 1.9-1.95 mtpd, of which 1.6-1.65 mtpd is supplied to the power sector, CIL is looking at a despatch target of 670 mt in FY22 and e-auction sales volumes at around FY21 levels of over 90 mt.

Power demand outlook and 45-50 per cent e-auction premium in October 21 indicate that demand is strong. If demand sustains, CIL will ramp-up supply in the coming months. Rising diesel costs and impending wage revision make us believe that CIL will have to hike FSA prices soon.

CIL took an ad hoc provision of ₹3 billion in Q2FY22. However, negotiations are still on, and hence final actuarial valuations and provisions are difficult to predict. Impact is expected to be much lower versus past revisions since the number of employees in consideration is lower by 75,000 and DA increase is also lower.

Company has been able to reduce its receivables to sustainable levels (₹12,000 crore currently). We believe H2FY22 will see higher offtake and higher realisation for both FSA and e-auctions.

CIL is targeting 640 mt/670 mt production/despatch in FY22. Despatch target for FY23 stands at 700-710 mt, but will depend on FY22-end inventories.

Published on November 26, 2021

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