Buy Coal India (CIL) with target price of R443 per share. At the CMP, the stock offers total returns of 20% (including 4% dividend yield). On our FY16f normalised earnings, the stock trades at 11x P/E and 6.7x EV/ebitda. Notwithstanding the current disinvestment overhang, we maintain that CIL remains a good long-term story.
CIL’s nine months FY15 production and off-take was up 7.3% and 3.8% y-o-y, but 3.1% and 5.9% below CIL’s MoU-based targets. In absolute terms, the shortfall in production and off-take stood at 11 million tonnes and 22 million tonnes (production shortfall concentrated in NCL and WCL whereas offtake shortfalls were across all subsidiaries excluding ECL). For nine months of FY15, all subsidiaries have posted y-o-y growth in production and off-take (except BCCL, where off-take declined marginally).
We maintain that CIL’s MoU-based FY15f off-take target (520 million tonnes) appears unreasonable, whereas CIL’s FY15f production target appears stretched – implied production and off-take growth in Q4FY15 to achieve CIL’s target levels for production and off-take is 15% and 28%.
In our view, whereas CIL appears on track to exceed our FY15f production forecast, it is likely to fall short of our FY15f off-take target.
Nomura