Coal India Ltd. share price target

Coal India’s (CIL) Aug’23 operating numbers were robust. Key points: 1) production/sales volume continued at the highest-ever level for the fifth successive month in FY24; 2) SECL’s volume revival has offset the flat volumes from MCL; 3) the traditional volume trough in Q2 is far lower in FY24 owing to increased rake availability; 4) higher volume to non-regulated sector (NRS), up 61% YoY in Aug’23, is likely to maintain FSA prices.

Coal India’s (CIL) Q1FY24 EPS of INR 12.9 was 24% and 21% ahead of our and consensus’ estimates, respectively. Key points: 1) FSA realisation was aided by higher supplies to non-regulated sector (NRS); 2) e-auction premium over FSA prices was 144%; and 3) provision of INR 8bn towards wage revision was recognised in Q1FY24.

We expect e-auction volumes to rise which could partially compensate for the falling e-auction premiums. We maintain our BUY rating on the stock.

Coal India’s (CIL) board of directors has approved a price hike of 8% on higher- grade coal (G2-G10) w.e.f. 31st May’23, translating into a benefit of Rs27.03bn for the remaining part of FY24. Despite the high-grade coal production being limited to subsidiaries such as BCCL and CCL, we believe the price hike is likely to partially allay investor concerns about the adverse impact of the recent wage hike on profitability.

We hosted Coal India’s (CIL) management for a roadshow in Mumbai (on 17th May’23). Key points: 1) volume growth is likely to be the key growth driver; 2) e-auction volumes are likely to surpass 100mnte in FY24 (FY23: 62mnte) though realisation may come off; 3) the major provisions pertaining to staff cost have been taken in FY23 itself.

Coal India’s (CIL) Q4FY23 performance (adj. for wage provisioning) was slightly higher than consensus estimates. Key points: 1) Wage provisioning at Rs58.7bn was higher than street estimates of Rs25-30bn; 2) e-auction volume at 16.4mnte (down 41% YoY) was lower than our estimate of 20mnte.

Recommendation: We expect e-auction volumes to rise which could partially compensate for the falling e-auction premiums. With wage costs largely settled and possible trigger of FSA rate hike ahead we upgrade CIL to BUY from HOLD.

We reinitiate coverage on Coal India (CIL) with a target price of Rs255 and an ADD rating. Key points: 1) incrementally higher production from profitable subsidiaries is likely to be margin-accretive; 2) progress underway for augmenting evacuation infrastructure to cater to incremental production.