Coal India (CIL) has posted yet another month of excellent performance in Feb’20, continuing its surge from Dec’19 onwards. Production for Feb’20 increased 14.2% y-o-y to 66.3mnte, clocking an average of ~2.3mnte/day. This boosted the 11MFY20 production figure, which is now lower by only 1.9% y-o-y at 517.8mnte, a significant improvement from Nov’19 when it was lower by 7.8% y-o-y. Performance of the three largest subsidiaries and increased offtake from the power sector continue to be the key factors behind the improvement.
We reiterate our production estimate of 600mnte for FY20e, backed by our expectation of a repeat performance in Mar’20, as clocked during Mar’19 (average production of 2.55mnte/day). We maintain our Buy rating on the stock with a target price of Rs 319/share.
Excellent production performance in Feb’20: For the month of Feb’20, contribution to the growth in production came from CCL, MCL, SECL, and WCL, which increased 20%, 11.9%, 19.2%, 26.7% y-o-y respectively.
Reiterate 600mnte production estimate for FY20e; may surprise positively: Based on the performance of 11MFY20, we reiterate our production volumes estimates for FY20e at 600mnte (vs 603mnte in FY19). Average production for Feb’20 is already at ~2.3mnte/day. With CIL having clocked an average production of 2.55mnte/day in Mar’19 (which will be sufficient for achieving our estimates), we may even be positively surprised on the production numbers for the year.
Expect offtake from power sector to improve further: Offtake for Feb’20 came at 55mnte up 6.8% y-o-y, while for 11MFY20 it is now lower by only 3.7% y-o-y at 528.3mnte. As power demand has witnessed a material improvement from Jan’20 onwards (up 3.5%/7.3% y-o-y in Jan’20/Feb’20), we expect offtake to improve significantly in Mar’20 and CIL to end FY20 at 595-600mnte. In addition, during Jan-Feb’20, almost all the major power plants increased their coal stocks. We expect this trend to continue, especially for pithead plants located in central and eastern regions.
Valuation: We remain positive on CIL over FY19-22e, with FY22e RoE at 44.3% and the stock trading at 4.8x P/E and 1.9x EV/Ebitda on FY22e basis. We expect a significant increase in dividend payout in FY20 (board meeting on 6th Mar), from Rs 13.1/share in FY19. Maintain Buy.