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Coal India 25% Upside ENAM 2011 TOP Pick
Excellent resource play, spotlight on washed coal
● CIL is undergoing a metamorphosis from a mere production driven company to a production plus
profitability focused mining behemoth. It is setting up 111 mn tonnes of new washing capacity for its
existing production and ~90% of incremental production will have dedicated washeries.
● Since washed coal realization is ~2.3x that of raw coal, we expect huge EBITDA margin expansion
(45% in FY17 vs. 27% in FY10) going forward. Led by better realizations and a volume CAGR of 6%,
we expect EBITDA and PAT to grow at a CAGR of 23% and 22% respectively by FY17.
● A strong balance sheet with net cash of USD 8.2 bn (FY10) and conservative accounting practices, the
overburden reserves of USD 2.7 bn can increase book value by USD 1.8 bn (post tax) under the
proposed IFRS regime.
● Our one year target price (based on DCF) stands at Rs 385. In the long term, CIL has potential to deliver
23% CAGR return over next 5 years in‐line with earnings growth. With a target P/E of 15x and our
EPS forecast of Rs 62 for FY17, CIL can trade at Rs 929 – five years hence.
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