Maintain ‘buy’ on Coal India with target of Rs 376: Edelweiss

We met senior management of Coal India (CIL) to know more about the steps the company is taking to tackle the impending wage hike and meet its sales target. CIL is confident of mitigating effects of the impending wage hike and increase in clean energy cess. It has maintained its production target of 598 million tonnes for FY17. CIL is targeting to reduce costs by 5% every year primarily through manpower cost rationalisation and enhancing operating and supply chain efficiencies. Our assumptions remain unchanged. We maintain ‘Buy’ with target price of `376 (16x FY18E PE).

Management mentioned CIL would be able to pass on the wage escalation through an increase in prices. We believe there is sufficient headroom for the company to hike prices as its FSA price is still at 35% discount on average to import parity prices.

We believe CIL will be able to expand its production volume by 9% in FY17E to 598 million tonnes. Almost 80% of CIL’s sales volumes are locked through long–term contracts (5 years and more). This brings stability to volumes. Going ahead, FSA volumes are likely to expand and e–auction volumes are likely to remain at 10–11%.

Coal India Ltd