Buy This Maharatna Stock For A Target Price of Rs. 195 In 12 Months

Coal India Limited (CIL) is a Maharatna company and is one of the single largest coal producers globally. The company has a market capitalization of Rs 98,572.84 Cr and on the NSE, the company's shares have increased by +23.10 (16.87 percent) in a year, resulting in a market price that has risen from Rs 136.90 on February 23, 2021 to Rs 160.00 on February 22, 2022, 3:30 pm IST. On a year-to-date basis, the stock is up by +4.70 (3.03%) and has also surged +26.05 (19.45%) in the last 6 months. The company recently released its Q3FY22 results, following which ICICI Securities, a domestic brokerage firm, issued a buy call on the stock with a target price of Rs 195 in the next 12 months.

Q3FY22 results of Coal India Limited (CIL) as per the brokerage

• CIL reported a healthy performance in Q3FY22, aided by better-than-expected e-auction sales volume and realisation.
• For Q3FY22, CIL reported sales volume of 174 MT, up 13% YoY & 18% QoQ. FSA sales volume for Q3FY22 were at 145 MT, marginally lower than our estimate of 150 MT. E-auction sales volume for Q3FY22 was at 26 MT, higher than our estimate of 21 MT. FSA realisations for Q3FY22 was at Rs 1370/tonne (down 4% YoY & 1% QoQ). E-auction realisations for Q3FY22 were at Rs 1947/tonne (up 20% YoY & 22% QoQ), higher than our estimate of Rs 1725/tonne.
• For Q3FY22, CIL's consolidated revenue from operations were at Rs 28434 crore (up 20% YoY & 22% QoQ), higher than our estimate of Rs 27765 crore. CIL's consolidated EBITDA for the quarter was at Rs 6825 crore (up 32% YoY & 73% QoQ), higher than our estimate of Rs 6090 crore. Consolidated EBITDA margin for Q2FY22 was at 24.0% compared to 21.8% in Q3FY21 and 16.9% in Q2FY22 (our estimate of 21.9%). EBITDA/tonne for Q3FY22 was at Rs 393/tonne, higher than our estimate of Rs 350/tonne (EBITDA/tonne of Rs 335/tonne in Q3FY21 and Rs 268/tonne in Q2FY22).
• Ensuing consolidated PAT for Q3FY22 was at Rs 4557 crore (up 48% YoY & 55% QoQ), higher than our estimate of Rs 4239 crore.

Key investment rationale for Coal India Ltd according to ICICI Securities

• For FY22E, CIL has given a production target of 630 MT and offtake target of ~660 MT. For FY23E, CIL has given production and off take target of ~700 MT each.
• We expect CIL's EBITDA margins to hover at ~22% in the next couple of years (21.7% for FY22E & 21.6% in FY23E). FY21 EBITDA margin was at 20.6%.

Buy for a target price of Rs. 195

The brokerage has claimed that "CIL's share price has given a return of ~19% in the last 12 months (from ~Rs 140 in February 2021 to ~Rs 167 levels in February 2022). We revise our rating on the stock from HOLD to BUY. We value CIL at Rs 195, 4.5x FY23E EV/EBITDA."

Investors should be cautious of the stock's key risks, according to ICICI Securities, which include a higher-than-expected increase in operating expenses and a lower-than-expected growth in offtake.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.