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Analyst corner:Maintain ‘outperform’ on Coal India

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SummaryCoal India (CIL) raises prices by 1-2%

Coal India (CIL) raises prices by 1-2%. Coal India has raised coal prices by adjusting the coal sizing charges and rapid loading charges, in addition to raising price by 10% for coal sold by subsidiary WCL.

This is the third increase in the year and CIL has now effectively taken an 8% price hike this year. Despite the market’s pessimism, we find CIL in an excellent situation.

In a rising market, it benefits from improvement in 25% of its sales that are market-linked, while in a downturn, it is able to raise prices for the remaining 75% of its sales, which are to the power sector, to boost margins. We maintain ‘outperform’.

Improvement in domestic demand will lead to higher e-auction price and also allow CIL to recoup the losses on higher-grade coal. Both these factors could move FY15E up by 20%. We understand that CIL, being a holding company, will need a dividend declaration from subsidiaries to boost reserves before it can announce a special dividend.

We are expecting a 10% dividend yield this year including the possible special dividend with possible payout in Feb/Mar’14. Coal India has been beaten out of shape due to possible follow-on public offer (now called off). It is trading at extremely attractive valuation of 13% FCF, 4.6x EV/Ebitda, which is 30% cheaper than global coal stocks.

Macquaire

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