We initiate coverage on Coal India (CIL) with REDUCE
(13% downside potential). We estimate FY12-14 EPS growth
given low production growth, delays in price hikes and rising wage
pressure. Downside risks from proposed 26% profit
in other PSUs and full valuations leave little room for
CATALYST
Project-wise analysis suggests muted FY11
Key downside catalyst for CIL should be production disappointment (our
project-wise analysis suggests 3.6% FY11-14 volume CAGR
estimate of 5-6%). Delays in wage negotiations and price
expect both to happen towards end-FY13 vs. consensus assumption of
1HFY13 – should prompt declines to consensus estimates and stock price
VALUATION
13-14% downside potential to base case from profit
Our DCF-based TP of INR260 translates into 6.4
11.3x PE. At 7.9x FY13E EV/EVITDA, CIL is among the most
stocks globally (Exhibit 32). Imposition of the 26% profit
would reduce our FY13-14E EPS 13-14% and fair value
Positive surprise on production/price and improvement in SEB finances
KEY CHART
Coal India is most expensive coal name under BNPP coverage
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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