According to Nomura, CIL, the country's largest coal producer, would come up with weak Q4 results and then go in for a broad based hike in notified coal prices
Coal India Ltd (CIL), the countries largest coal producer may come out with weak results due to lower year-end incentives and grade compliance-linked provisioning plus capped realisations. After the results, the coal producer would likely go in for a broad-based hike in notified coal prices in 1QFY15, says Nomura in a research note.
Nomura said it believes that during FY2015 coal production/ offtake forecasts for CIL of 488mt/496mt (up 5.5%/5.1% year-on-year) appear achievable, although offtake in April 2014 is up only 2% year-on-year.
Nomura's discussion with Coal India management focused on prospects of meeting stiff coal production/ offtake targets for FY2015, ongoing grade compliance exercise, and whether a change of guard at the Centre can materially facilitate clearances and build-out of mining/rail projects critical to CIL for augmenting output and offtake beyond 550mtpa.
“A Central Government with visibly stronger impetus on ensuring Centre-State administrative coordination to facilitate time-bound project clearances (environment/ forest clearances) and build-out of key rail projects would boost volume-led earnings growth prospects and bolster a longer-term investment case in CIL,” the research note added.
On the CIL share in the stock market, Nomura has recommended a 'Buy' rating. The target price is Rs315. On FY16F normalized earnings, the stock trades at 8.5x P/E (EPS of Rs35.1) and 4.7x EV/EBITDA (10.1x P/E and 6.0x EV/EBTIDA on reported earnings). At CMP (current market price), the stock offers a total potential 12-month return of 11.5% (including a dividend yield of 5.4%).
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