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“BUY” This Maharatna Mining Stock With A Target Price of Rs. 210: Edelweiss

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Edelweiss Securities Limited has suggested buying the stock of Coal India Limited (CIL) with a target price of Rs. 210. From the stock's current market price of Rs. 159, the brokerage predicts a growth of 32% in 12 months.

 

Q2FY22 results of Coal India Ltd.

Q2FY22 results of Coal India Ltd.

The brokerage has said in its research report that "CIL's Q2FY22 EBITDA of INR39.1bn (down 2% QoQ) missed estimates. Key points: i) Higher sales to the power sector (up 13% YoY) resulted in lower realisation despite the average grade remaining unchanged at G-11. ii) E-auction premium to FSA sales was at 15% (Q1FY22: 13%). iii) Contractual expense was up 9.6% YoY at INR271/t, mainly due to higher diesel cost. iv) Overburden removal was at 271.03m3. v) Wage hike provisioning of INR3bn in Q2FY22. vi) Significant cash accretion due to working capital unlocking resulting in cash balance of INR283bn."

Edelweiss Securities Ltd has also clarified that " Going ahead, management expects: i) FY22 sales volume at 670-680mt; ii) e-auction volume flat YoY at ~94mt but at a higher premium; and iii) wage hike to be lower than last time as one-time gratuity adjustment (accounting for 20-25% of the hike last time) is unlikely to be there."

The management’s take
 

The management’s take

The brokerage gas claimed that "On analyst call, management indicated dividend is more tax-efficient than buyback in their case. Cash balance was INR283bn (INR46/share) at Sep-21 end, and we expect earnings momentum to be higher in H2FY22 due to better e-auction premium (40-45%) and sales volume growth. Besides, an earnings-accretive FSA price hike (net of wage escalation) is likely to be positive. Hence, we expect dividend at INR18/share (FY21: INR16/share), implying an FY22E dividend yield of 12.6%."

Buy Coal India Ltd. with a target price of Rs. 210

Buy Coal India Ltd. with a target price of Rs. 210

According to the brokerage's call "Despite Q2FY22 results missing estimates, we are positive on CIL due to higher-than expected volume growth and e-auction premium prospects. Besides, cash accretion is likely to improve further tracking lower receivables, leading to a potential dividend yield of 12-13%. Retain ‘BUY' with an unchanged TP of INR210 on 9x FY23E EPS."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Thursday, November 25, 2021, 14:56 [IST]
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