Seasonally weak show, long term thesis remains intact
About stock: Coal India Ltd (CIL), is the largest coal producer domestically as well as globally. It is a ‘Maharatna’ PSU, operating under aegis of Ministry of Coal.
• Operation spanning 84 mining areas across eight states, currently owing 313 mines including 131 underground, 168 opencast and 14 mixed mines.
Q2FY25 Result: Coal India reports muted performance in Q2FY25. Total operating income came in at ₹30,673 crore (down 6% YoY, 16% QoQ) with coal sales volume of 168 million tonne (down 4% YoY & 16% QoQ). Reported EBITDA stood at ₹8,617 crore with EBITDA margins at 28% (down ~253 bps YoY). EBITDA/tonne for the quarter stood at ₹514/tonne vs. ₹578/tonne in Q2FY24. PAT stood at ₹6,289 crore (down 21% YoY). It declared a first interim dividend for FY25 at ₹15.75 per share.
Investment Rationale:
• Coal remains essential to India’s energy requirement: Coal continue to play a major role in India’s energy landscape, providing ~55% of nation’s energy and fulfilling ~70% of its electricity requirements. Despite a growing emphasis on renewable/non-fossil fuel-based energy, the demand for coal based thermal capacity is anticipated to rise to meet domestic energy needs. Consequently, coal demand is projected to reach ~1.3 to 1.5 billion tonnes by 2030 positioning CIL as a significant beneficiary, given that it accounts~78% of the country’s coal production and meets ~40% of energy requirement. Furthermore, with India importing ~200 million tonne of noncoking coal as of FY24, presents a near-term growth opportunity for CIL.
• Substantial capex in place to support its ambitious volume growth: In alignment with government’s vision of 24×7 power supply, CIL aims to produce 1,000 MT of coal by FY26E. Conservatively, we project coal production/sales volume at CIL to grow at 10% CAGR over FY24-27E to 1,000 MT by FY27E. Key factors supporting this growth include: (i) progress on 119 coal projects with a capacity of 896 million tonnes at a capex outlay of ~₹1.3 lakh crore (ii) improved coal transportation infrastructure (iii) reviving ~24 discontinued mines of which ~11 mines were awarded to bidders under a revenue sharing model with reserves at ~267 MT (iv) engagement with 15 MDOs targeting a capacity of ~170 MTPA
• Expanding its product portfolio beyond conventional coal mining: CIL is strategically broadening its portfolio into newer domains such as (i) Coal Gasification project with JV agreements with BHEL and GAIL (ii) Investments in Thermal Power generation with projects like Mahanadi Basin Power Ltd among others (iii) Exploring prospects for acquiring & mining critical mineral assets in domestic & international markets. These measures are structurally positive for CIL and shall bear fruits in long term.
Rating and Target Price
• We remain positive on Coal India amidst healthy volume growth on anvil, superlative return ratios (RoCE’s at ~30%+), healthy net cash positive b/s and robust dividend yield (~6%). We assign BUY rating to Coal India with target price of ₹585 i.e. 5.5x EV/EBITDA on FY26E.
Leave a Reply