For CIL, 305-300 may be a good buying zone for target of 352-370
Deferment of Govt's stake sale in CIL can help---
CMP: 314
Buy either on break out above 322 or wait for dips around 305-300:
TGT: 333-352-370 (1-3M)
TGT:385-400 (6-12M)
TSL< 295
Note: Consecutive closing below 295 in CIL for any reason, it may further fall to 285-270 zone in the near term.
As par reports, certain Institutions/FPI (s) has objected for Govt's stake sale plan at current market valuation is too low for CIL. They also warned the Govt that they will sell their existing holdings, if the Govt proceed with the planned stake sale in CIL. The Govt is also seemed to abandon the stake sale plan for the time being. In Jan'15, the Indian Govt sold 10% of its stake by OFS route @358 floor price and fetched around Rs.22600 cr.
This time Govt is planning another 10% stake sale through OFS, which may fetch around Rs.20000 cr to the exchequer.
There are also immense pressure on FPI(s) and foreign merchant bankers from international green lobbies on CIL stake sale issues as the company is not being able to meet its green commitment made in 2013.
The investors are also concerned over high operating costs, inflated salary bills (also likely increased further for 7-th Pay Comm), low productivity and declining ROE. As par some reports, imported coal costs from Indonesia (high grade for thermal power projects) is less than those of CIL. The current e-auction pricing fall because of lower international prices is also putting pressure on CIL scrip.
CIL (80% of total production) and another unlisted PSU SCCL (10% of total production) has enjoyed virtual monopoly in Indian coal mining industry over the years. Due to this monopoly, CIL has enjoyed good pricing power, although it was often accused of supplying inferior quality of coals (high ash content with stones & boulders) to thermal power sectors, which also caused huge loses to them (power sectors).
Recently, GOI decided to end this virtual monopoly of CIL by allowing commercial mining of other state & central PSUS. These steps may help to increase the supply of domestic coals and reduce dependence on imported coals. This may also help to reduce prices of domestic coals and improve quality of the same. Though recently operating margins of CIL came down to around 20%, its still high in absence of any domestic competition and with entry of new coal mining players, the OM may come down to more reasonable levels.
With the gradual deregulation of coal industry, we may see private players entering it in the coming years which may be more helpful for overall efficiency of this sector and though negative for CIL in the first instance, it may also compel it for greater efficiency in the long run as it will be still the number one player (world's largest coal miner). But as par experts, this deregulation to be successful, the Govt should rope in professional mining companies rather than handing over coal blocks to companies which don't have any core competence in mining (like NTPC). So, in the near future, there my not be any major impact on CIL for this coal deregulation initiative by the Govt.
Though CIL is facing some difficulties in meeting its target of 1 BT coal output by 2020, recent completion of three rail lines in East-West freight corridor (States-CH/JH/OD) may help it to evacuate extra 280 MT of coals by 2017-18. As par analysts, this may fetch additional revenue of around Rs.400 bln and profitability of around Rs.80-100 bln to CIL by FY-18, assuming the current trend in global coal pricing.
CIL is also undertaking several corrective measures including technology enhancements and global technological collaborations to boost its production capacity and quality. Its also pursuing mine wise strategy to focus on evacuation of coal and expanding its coal washeries base to improve quality of its evacuated coal.
Q2FY16 result of CIL was below street estimates. Q2 PAT was around Rs.2544 cr against estimate of Rs.2756 cr (YOY: Rs.2192 cr and QOQ: Rs.3764 cr).
Q2 EPS was at 4.03 against consensus of 5.09 (YOY: 3.47; QOQ: 5.96).
Q2 OM of CIL was at around 17.69% which was expanded by 1.39% (YOY), but declined by 8.13% (QOQ).
Though there may be some pressure on coal mining globally for climate changes & green initiatives, for a developing country like India, in reality, there may not be any major impact on fresh coal mining in the foreseeable future.
As par BG metrics and current market trends :
(based on consolidated TTM & FWD EPS)
Present median valuation of CIL may be around : 335 (FY:15/TTM)
Projected fair valuations might be around: 350-370-400 (FY:16-18/FWD)
CIL (80% of total production) and another unlisted PSU SCCL (10% of total production) has enjoyed virtual monopoly in Indian coal mining industry over the years. Due to this monopoly, CIL has enjoyed good pricing power, although it was often accused of supplying inferior quality of coals (high ash content with stones & boulders) to thermal power sectors, which also caused huge loses to them (power sectors).
Recently, GOI decided to end this virtual monopoly of CIL by allowing commercial mining of other state & central PSUS. These steps may help to increase the supply of domestic coals and reduce dependence on imported coals. This may also help to reduce prices of domestic coals and improve quality of the same. Though recently operating margins of CIL came down to around 20%, its still high in absence of any domestic competition and with entry of new coal mining players, the OM may come down to more reasonable levels.
With the gradual deregulation of coal industry, we may see private players entering it in the coming years which may be more helpful for overall efficiency of this sector and though negative for CIL in the first instance, it may also compel it for greater efficiency in the long run as it will be still the number one player (world's largest coal miner). But as par experts, this deregulation to be successful, the Govt should rope in professional mining companies rather than handing over coal blocks to companies which don't have any core competence in mining (like NTPC). So, in the near future, there my not be any major impact on CIL for this coal deregulation initiative by the Govt.
Though CIL is facing some difficulties in meeting its target of 1 BT coal output by 2020, recent completion of three rail lines in East-West freight corridor (States-CH/JH/OD) may help it to evacuate extra 280 MT of coals by 2017-18. As par analysts, this may fetch additional revenue of around Rs.400 bln and profitability of around Rs.80-100 bln to CIL by FY-18, assuming the current trend in global coal pricing.
CIL is also undertaking several corrective measures including technology enhancements and global technological collaborations to boost its production capacity and quality. Its also pursuing mine wise strategy to focus on evacuation of coal and expanding its coal washeries base to improve quality of its evacuated coal.
Q2FY16 result of CIL was below street estimates. Q2 PAT was around Rs.2544 cr against estimate of Rs.2756 cr (YOY: Rs.2192 cr and QOQ: Rs.3764 cr).
Q2 EPS was at 4.03 against consensus of 5.09 (YOY: 3.47; QOQ: 5.96).
Q2 OM of CIL was at around 17.69% which was expanded by 1.39% (YOY), but declined by 8.13% (QOQ).
Though there may be some pressure on coal mining globally for climate changes & green initiatives, for a developing country like India, in reality, there may not be any major impact on fresh coal mining in the foreseeable future.
As par BG metrics and current market trends :
(based on consolidated TTM & FWD EPS)
Present median valuation of CIL may be around : 335 (FY:15/TTM)
Projected fair valuations might be around: 350-370-400 (FY:16-18/FWD)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| COALINDIA | 21.85 | 88.87 | 15 | 341.51 | 322.95 | 332.23 | 355.85 | 318.23 |
| COALINDIA | 23.9 | 1092.55 | 15 | 357.17 | 337.77 | 347.47 | 355.85 | 318.23 |
| COALINDIA | 27.2 | 1162.95 | 15 | 381.03 | 360.33 | 370.68 | 355.85 | 318.23 |
| COALINDIA | 31.75 | 1244.25 | 15 | 411.67 | 389.30 | 400.49 | 355.85 | 318.23 |
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