Stock To Buy: Motilal Oswal Gives A Buy Call To This Maharatna Stock For 27% Potential Gains

Reports a mixed bag of earnings

In its latest report, the brokerage firm has stated, "Coal India reported a largely in line 4QFY22, but e-auction premiums, the mainstay of its profitability, disappointed both in terms of volume and premium. Cost control, especially in contractual costs, resulted in a marginal beat on adjusted EBITDA in 4QFY22. Net sales grew 22% YoY and 15% QoQ to Rs 327b in 4QFY22. The QoQ growth in sales was driven by a 4% growth in dispatches, 8% higher FSA prices, and 25% growth in e-auction prices. e-auction premium in 4QFY22 was 57% against our assumption of 90%. As a result, net sales were 7% lower than our estimate. Adjusted EBITDA (net of OBR) grew 56% YoY and 69% QoQ to Rs 125b, 6% higher than our estimate. The EBITDA beat, despite a miss on revenue, was largely due to lower material costs and contractual expenses. PAT grew 46% YoY and 47% QoQ to Rs 67b in 4QFY22, 10% below our estimate due to a sharp uptick in OBR, which stood at Rs 34b (up 1x YoY and 5x QoQ, est. INR12b). The spike in OBR in 4QFY22 was significantly higher than usual corresponding periods. Net sales/adjusted EBITDA/PAT grew 22%/42%/37% YoY to INR1,097b/ INR285b/INR174b in FY22. The lower PAT growth in FY22 was attributed to its highest ever quarterly provisioning of OBR."

Brokerage comments and views on the e-auction volumes & premium

Commenting on the performance, the brokerage has said, "e-auction volumes fell 4% YoY, but grew 7% QoQ to 27.7mt in 4QFY22. e-auction realization grew 39% YoY and 25% QoQ to Rs 2,434/t in 4QFY22. However, e-auction premium over FSA was only 65% in 4QFY22, despite a significantly higher e-auction premium, as per the monthly reported data. e-auction premium since Nov'21 has been significantly higher than the reported number in 4QFY22. From Dec'21 to Mar'22, e-auction premium remained over 100%. The same stood over 290% in Mar'22. The higher e-auction volumes dispatched in 4QFY22 could be due to auctions in prior months. The e-auction premium and value is likely to be higher going forward as e-auction trends since Sep'21 show a marked improvement in premium."

Buy for a target price of Rs 230/share

COAL had registered a strong e-auction premium from Nov'21 to Mar'22. However, it lagged volumes in Apr'22, given the pressure to increase supplies to the Power sector. With the onset of the monsoon, demand for coal from the Power sector is likely to reduce. However, demand from the non-Power sector is unlikely to diminish, given the strong global prices. This should result in higher volumes for the non-regulatory sector (NRS) in coming months. "We maintain our Buy rating, with a revised TP of Rs 230/share, at 4x FY23E EV/EBITDA," the brokerage has said.

About The Company - Coal India Ltd

Coal India Ltd is a Maharatna-rated Indian government-owned company, incorporated in 1973. The company has a market capitalisation of Rs 112,069 crore. Coal India is a coal mining and refining company. The company is mainly engaged in mining and production of Coal and also operates Coal washers. The major consumers of the company are the power and steel sectors. Consumers from other sectors include cement, fertilizers, brick kilns etc.