Following a significant price hike announced by Coal India Limited (CIL), global brokerage Nomura has advised investors to remain ‘neutral’ saying headroom in valuations in not compelling. Nomura hiked the price target to Rs 335 per share from Rs 283 per share implying an upside of nearly 18 percent. CIL share was trading in red at Rs 304.85 on NSE at the time of reporting.The Kolkata-based state miner had raised prices of some lower grades of the fuel, while reducing those for some higher grades with effect from January 9. CIL shares jumped 5.6 percent on Tuesday after the coal producer announced it will increase prices of non-coking coal late on Monday. Coal India raised prices of the fuel used to fire power plants for the first time in around 18 months triggering a rally in the company’s share prices. Nomura said, with this price hike, company’s earnings or pay outlook will get a big boost ahead. For CIL investors, 2018 has started on a brighter note what with the stock appreciating a huge 15.6 percent till now.
Interestingly, while the company has increased prices, the price hike is still below the global market prices. “We have reduced prices of higher grades to compete with imports in line with the government’s vision to reduce imports,” S N Prasad told Bloomberg. “This year, our dispatches are about 30 million tonne more than last year. Already there are so many positives for Coal India. But the country still imports about 150 million tonne of non-coking coal and that is really not in the interest of the nation because we have so much of reserves, more than 315 billion tonne,” Gopal Singh, CMD, Coal India told ET Now adding that the incremental revenue from the move will be used for building capacity to enhance production in years to come.
The company is expecting a 10 percent rise in the salary costs in the current year. “We are estimating our cost on account of payment to salary to our employees will increase by about 10%. Last year, it was Rs 33,000 crore. This year we are estimating about 10% increase and that will be taken care of. We are going for capacity building and adopting the environment friendly measures, so we require the fund,” Gopal Singh, CMD, Coal India told the channel.The move aims to make the coal price-setting mechanism simpler and more transparent, and the company has changed the entire pricing policy.