We retain our ‘buy’ rating on Coal India (CIL) and reviewing our estimates for the company. We assign a 12-month target price of Rs 398 per share, using a sum-of-the-parts of FCFF-based methodology to value the cash flows from its 10.6 billion tonne of proven reserves at R315 per share and market capitalisation per tonne-based value of CIL’s probable reserves (8.3 billion tonne) and resources (45.5 billion tonne as per the JORC Code) at R83 per share.
On our normalised earnings estimates (adjusted for OB removal adjustment and excluding potential incidence of a mining tax), the stock trades at FY14f 8.0x P/E and 3.5x EV/ebitda.
CIL released production and offtake performance for December. At 44.5 million tonne, coal production was up 1.4% y-o-y, but 13% below the company's target. Coal offtake stood at 42.9 million tonnes, up 1.9% y-o-y but 1.4% below CIL’s target. The production shortfall for December was on account of CCL whereas offtake shortfall was on account of CCL and MCL (contract-labour related constraints in despatches).
For the nine months (Apr-December) of FY14, coal output was up 3.3% y-o-y (10.3 million tonne) and coal offtake was up 2.2% y-o-y (7.3 million tonne). Nine months FY14, production /offtake is 4.6%/3.5% below CIL’s own target. In absolute terms, the production /offtake shortfall is 15.2 million tonne/12.4 million tonne, respectively.