The board has declared an interim (not special) dividend of Rs 29 per share. Coal India will still end FY14 with a cash balance of R86/share, 33% of the adjusted market cap. We have assumed 50% payout ratio, but Coal India will remain the main source for the cash-strapped government and the payout could be higher.
The management is determined to keep operating margins close to 30% and we expect the effect of these hikes to reflect in 2H14 margins.
Following faster decision-making at the environment ministry, Coal India thinks it can easily boost output by 30-40 mt.
We estimate a 40% rise in demand for coal under e-auction volume in FY15. This can lead to a recovery in e-auction coal price, from R2,200/t to the R2,800/t seen in FY13, posing upside risks to our 3% above- consensus FY15e EPS.
We cut our EPS estimates by 6-9% for FY14-16 factoring lower other income and volume and target price from R360 to Rs 353 at 12x PER FY15E.