Add Coal India on volume growth: Kotak

May 31 2014, 12:31 IST
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SummaryWe revise our rating on Coal India to ADD (BUY previously) as the recent stock rally prices...

We revise our rating on Coal India to ADD (BUY previously) as the recent stock rally prices in a normalised growth trajectory, though accelerated volume growth through a combination of policy efforts and on the ground traction could help raise the earnings profile.

At 4% dividend yield and 9X P/E CIL is not outside our comfort zone, though will look for step-up in revenue growth as a catalyst for stock performance. Revise TP to R392 (R335 previously).

Absence of revenue growth due to lack of incremental volumes as well as flat realizations led to 17% yoy decline in EBITDA for CIL, which reported revenues of R200 bn (0% yoy, 18% qoq), EBITDA of R51 bn (-17% yoy, 24% qoq) and net income of R44 bn (-18% yoy, 13% qoq) against our estimates of R199 bn, R56 bn and R45 bn.

EBITDA was impacted by R9 bn of provisions that appear to be non-recurring in nature. Employee cost was maintained at R70 bn for the quarter (6% yoy decline), while sustenance of realizations suggests that incentives for supplying contracted quantities have been sustained.

- Kotak Institutional Equities

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