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Edelweiss Securities
Coal India (Buy)
Target: ₹210
CMP: ₹153.7
Coal India (CIL) operating performance has improved further. Key highlights are: Production rate caught up with sales for the first time in FY22; Larger and more profitable subsidiaries showed a marked improvement in performance; Inventory declined slightly in Dec-21 to 28.6 mt; e-auction volume, after falling in Oct-21, has been improving steadily, particularly to the non-regulated sector; and rake availability has continuously improved. After hitting a trough of 241.9 rakes/day, the rake movement improved to 272.2 rakes/day in Nov-21.
Taking cues from the current rate, we expect CIL’s FY22 offtake to rise 14 per cent y-o-y to 650–655 mt (our estimate: 643 mt)
Despite a lacklustre performance in H1-FY22, we expect H2-FY22 to be much better for CIL, led by higher e-auction premium and sales volume. Furthermore, the higher e-auction premium achieved in Oct-Nov-21 and focus on the non-regulated sector in Dec-21 are likely to improve profitability.
On the working capital front, we still do not see an inventory build-up. If the current offtake continues, we expect inventory to reduce to much lower levels by Mar-22 than 96.6 mt in Mar-21. Going by the possibility of better earnings and cash accretion, we maintain Buy on the stock with an unchanged target price of ₹210 (9x FY23 EPS).
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