Performs well, on well chartered growth trajectory…
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 83 mining areas across eight states, currently owing 322 mines including 138 underground, 171 opencast and 13 mixed mines.
FY24 Volume Update: Coal India reported a healthy production volume growth of 6% YoY to 88.6 million tonnes for March 2024 with overall FY24 production numbers reaching to 773.6 MT (up 10% YoY). Similarly, offtake volume for March 2024 stood at 68.8 MT (up by 7% YoY) and 753.5 MT (up by 8.5% YoY), respectively. It has maintained a production and sales volume guidance of 838 MT for FY25.
Q3FY24 Results: Reports healthy performance for the quarter. Total operating income for the quarter came in at ₹ 36154 crore (up 3% YoY & 10% QoQ) with coal sales volume of 191 million tonne (up 9% YoY and 10% QoQ). Reported EBITDA for the quarter came in at ₹ 11,373 crore with corresponding EBITDA margins at 31.5% (up ~200 bps YoY). EBITDA/tonne for Q3FY24 came in at ₹ 594/tonne in Q3FY24 vs. ₹ 468/tonne in Q2FY24. PAT in Q3FY24 stood at ₹ 9094 crore (up 18% YoY and 33% QoQ basis). The company declared an interim dividend of ₹ 5.25 per share.
Investment Rationale: Long term thesis intact
• Coal share in India’s energy basket remain significant: Coal accounts ~50% of India’s energy and ~70% of electricity needs, making it as the primary energy source for the country. Despite increasing focus on renewable/nonfossil fuel-based energy, there is anticipated growth in coal based thermal capacity to meet rising energy needs domestically. Thus, demand for coal is expected to reach ~1.3 to 1.5 billion tonnes by 2030 positioning Coal India a clear beneficiary. Moreover, India imported ~180 MT of non-coking coal as of FY23, providing immediate opportunity for Coal India, medium term trigger
• Volume led growth to continue: CIL achieved its highest production volume of 774 MT in FY24 driven by robust demand form power sector. With government aiming for 24×7 power supply for all by 2025, CIL has set an ambitious target of achieving a production volume to 1000 MT by FY26E. We have forecast coal production at CIL to grow at a CAGR of 11% over FY23-26E to 950 MT by FY26E. Key enablers for double digit volume growth are: (i) better evacuation infrastructure in terms of First Mile Connectivity projects (ii) Engaging with 15 Mine Developer Operators (MDO) for a targeted capacity of ~170 MT and (iii) revival of Underground Mines wherein it has identified 30 discontinued mines with reserve of ~600 MT.
Rating and Target Price
• We have a positive view on Coal India amidst healthy volume growth on anvil, superlative return ratios (RoCE’s at ~40%), healthy net cash positive b/s and its leading contribution to India’s energy needs. We assign BUY rating to Coal India with target price of ₹550 wherein we have valued it at 5x EV/EBITDA on FY26E. High dividend yield of ~6% is added positive.
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