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Coal India (CIL) remains our top pick – raising target price to INR 450
Increased wagon supply by railways could help deplete inventory at a faster rate
than envisaged, prompting us to raise our FY12E EPS by 8% to INR 24.8 – one of
the highest on the Street. Second, the inability to source cheap domestic coal is
resulting in power plant utilisation falling below 68%, a level at which debt
servicing could be a challenge. One solution is to raise domestic coal prices at a
5% CAGR over FY12-17E, resulting in an INR 450 target price. Finally, the start of
coal block auctions could spice up valuations of Coal India. We maintain Buy.
Coal from CIL is becoming scarce; upcoming 7 June EGOM meeting is crucial
The upcoming EGOM meeting slated for 7 June and chaired by the prime minister
of India could consider resolving complex issues of environment, growth and fuel
availability as domestic coal availability is rising 5.7% vs. demand of 8.3% and
Indian coal users, especially power generators, cannot blend more than a 20%
proportion of imported coal due to design specifications. One of the solutions
cited by the planning commission is for Coal India to shift part of the e-auction
volumes to power players and raise the regulated coal price by 10%.
Raising domestic prices towards international parity – a plausible solution
While we await the decision of policymakers, looking at repercussions of coal
shortages, we have assumed higher despatches in FY12 on assumptions that
railways could prioritize coal movement. Further, we assume a 5% CAGR until
FY17E for the regulated sale price (75% of volumes). Even then, the FY17E sale
price could be at a discount of 21% vs. our long-term coal forecast of USD 105/t.
Raising our target price to INR 450
Our target price of INR 450 is derived from life-of-mine DCF and an exit P/E
multiple of 18x (16x earlier) to factor in low commodity prices in the near term.
Key risks are lower-than-expected volume and a policy decision to divert e-auction
coal to regulated sales with a coal price increase of less than 4%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India (CIL) remains our top pick – raising target price to INR 450
Increased wagon supply by railways could help deplete inventory at a faster rate
than envisaged, prompting us to raise our FY12E EPS by 8% to INR 24.8 – one of
the highest on the Street. Second, the inability to source cheap domestic coal is
resulting in power plant utilisation falling below 68%, a level at which debt
servicing could be a challenge. One solution is to raise domestic coal prices at a
5% CAGR over FY12-17E, resulting in an INR 450 target price. Finally, the start of
coal block auctions could spice up valuations of Coal India. We maintain Buy.
Coal from CIL is becoming scarce; upcoming 7 June EGOM meeting is crucial
The upcoming EGOM meeting slated for 7 June and chaired by the prime minister
of India could consider resolving complex issues of environment, growth and fuel
availability as domestic coal availability is rising 5.7% vs. demand of 8.3% and
Indian coal users, especially power generators, cannot blend more than a 20%
proportion of imported coal due to design specifications. One of the solutions
cited by the planning commission is for Coal India to shift part of the e-auction
volumes to power players and raise the regulated coal price by 10%.
Raising domestic prices towards international parity – a plausible solution
While we await the decision of policymakers, looking at repercussions of coal
shortages, we have assumed higher despatches in FY12 on assumptions that
railways could prioritize coal movement. Further, we assume a 5% CAGR until
FY17E for the regulated sale price (75% of volumes). Even then, the FY17E sale
price could be at a discount of 21% vs. our long-term coal forecast of USD 105/t.
Raising our target price to INR 450
Our target price of INR 450 is derived from life-of-mine DCF and an exit P/E
multiple of 18x (16x earlier) to factor in low commodity prices in the near term.
Key risks are lower-than-expected volume and a policy decision to divert e-auction
coal to regulated sales with a coal price increase of less than 4%
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