Nirmal Bang is bullish on Coal India (CIL) and has recommended buy rating on the stock with a target price of Rs 374, in its April 03, 2013 research report.
"Coal India, the street has given paramount importance to the government selling a part of its stake in the company, ignoring all the positives. After a stagnant performance over FY08-FY12, CIL's coal production has picked up in FY13 and is expected to accelerate over FY14-FY15. We expect coal off-take CAGR of 5.6 percent over FY12- FY15E versus 2.6 percent CAGR attained over FY09-FY12. CIL has framed its fuel supply agreements (FSAs) in such a manner that it is most unlikely to attract a penalty for short-supply of coal due to the inclusion of force majeure clauses on factors like delay in land acquisition and getting forest and environmental clearances. CIL stock trades at an attractive valuation with EV/EBITDA multiple at 5.7x/4.1x FY14E/FY15E earnings, respectively, well below the average of 10.2x.
CIL stock trades at EV/EBITDA multiples of 5.7x/4.1x FY14E/FY15E earnings, respectively, much below the past 29 months' (post listing) average of 10.2x. It trades below 2SD across parameters like P/E, EV/EBITDA and P/BV and it is at such a low multiple for the first time since its listing. Hence, we believe the CMP factors in all the negatives.
We expect CAGRs of 8 percent/12 percent/13 percent in revenue/ EBITDA/PAT, respectively, over FY12-FY15E, driven by a 5.6 percent growth in volume and a 2.5 percent rise in realisation. We believe coal price hike is imminent given the pressure on costs following the sustained rise in diesel prices and its resultant impact on overall inflation. Cash reserves of CIL are likely to go up from Rs592bn at the end of FY12 to Rs1,054bn (54 percent of current market capitalisation) at the end of FY15E.
The company needs to ramp up output to 584mt by FY17E, which implies a CAGR of 7.0 percent over FY15E-FY17E. CIL has not achieved this kind of growth in the past 10 years and hence it would be difficult for the company to achieve this output target. However, CIL has framed FSAs by including force majeure clauses on all possible causes of coal short-supply like delay on the part of the government to grant and renew mining leases including land acquisition, environmental and forest clearances, shortage of imported coal (no response to enquiries or logistics constraints) and law and order problem (largely pertaining to Maoists). As a result, there are remote chances of CIL attracting a penalty in case of short-supply of coal.
We believe the accounting treatment of OBRA under Indian Generally Accepted Accounting Principles (GAAP) is fair as it limits the scope for any negative surprises in the later part of the coal extraction phase. However, as per the International Financial Reporting Standards (IFRS), OBRA should not be taken into account. Adopting a fair policy, we have treated OBRA as an expense and accumulated OBRA provision in the balance sheet has been considered as a long-term liability (treated as debt in EV/EBITDA target calculation)
Valuation: CIL stock trades at P/E multiples of 10.4x/9.1x based on FY14E/FY15E earnings, respectively, while EV/EBITDA multiples stand at 5.7x/4.1x for the same period. The P/E and EV/EBITDA multiples are well below the past 29 months' (post listing) average of 13.6x and 10.2x, respectively. We have valued the stock at EV/EBITDA of 7.5x FY15E (in line with global peers' one-year forward EV/EBITDA multiple), which is around 25 percent discount to the average multiple. However, we believe the stock could trade at a higher multiple compared to the global average due to conservative accounting practices, mainly related to over-burden removal adjustment. Besides, conservative accounting practices, CIL's return ratios are much above those of global peers. As a conservative practice, we have treated long-term provisions, which includes long-term employee provisions like gratuity and leave encashment, OBRA and mine closure provision, as debt. Our target price of Rs 374 is 21 percent above the CMP and therefore we have assigned a buy rating to CIL," says Nirmal Bang research report.
Source
"Coal India, the street has given paramount importance to the government selling a part of its stake in the company, ignoring all the positives. After a stagnant performance over FY08-FY12, CIL's coal production has picked up in FY13 and is expected to accelerate over FY14-FY15. We expect coal off-take CAGR of 5.6 percent over FY12- FY15E versus 2.6 percent CAGR attained over FY09-FY12. CIL has framed its fuel supply agreements (FSAs) in such a manner that it is most unlikely to attract a penalty for short-supply of coal due to the inclusion of force majeure clauses on factors like delay in land acquisition and getting forest and environmental clearances. CIL stock trades at an attractive valuation with EV/EBITDA multiple at 5.7x/4.1x FY14E/FY15E earnings, respectively, well below the average of 10.2x.
CIL stock trades at EV/EBITDA multiples of 5.7x/4.1x FY14E/FY15E earnings, respectively, much below the past 29 months' (post listing) average of 10.2x. It trades below 2SD across parameters like P/E, EV/EBITDA and P/BV and it is at such a low multiple for the first time since its listing. Hence, we believe the CMP factors in all the negatives.
We expect CAGRs of 8 percent/12 percent/13 percent in revenue/ EBITDA/PAT, respectively, over FY12-FY15E, driven by a 5.6 percent growth in volume and a 2.5 percent rise in realisation. We believe coal price hike is imminent given the pressure on costs following the sustained rise in diesel prices and its resultant impact on overall inflation. Cash reserves of CIL are likely to go up from Rs592bn at the end of FY12 to Rs1,054bn (54 percent of current market capitalisation) at the end of FY15E.
The company needs to ramp up output to 584mt by FY17E, which implies a CAGR of 7.0 percent over FY15E-FY17E. CIL has not achieved this kind of growth in the past 10 years and hence it would be difficult for the company to achieve this output target. However, CIL has framed FSAs by including force majeure clauses on all possible causes of coal short-supply like delay on the part of the government to grant and renew mining leases including land acquisition, environmental and forest clearances, shortage of imported coal (no response to enquiries or logistics constraints) and law and order problem (largely pertaining to Maoists). As a result, there are remote chances of CIL attracting a penalty in case of short-supply of coal.
We believe the accounting treatment of OBRA under Indian Generally Accepted Accounting Principles (GAAP) is fair as it limits the scope for any negative surprises in the later part of the coal extraction phase. However, as per the International Financial Reporting Standards (IFRS), OBRA should not be taken into account. Adopting a fair policy, we have treated OBRA as an expense and accumulated OBRA provision in the balance sheet has been considered as a long-term liability (treated as debt in EV/EBITDA target calculation)
Valuation: CIL stock trades at P/E multiples of 10.4x/9.1x based on FY14E/FY15E earnings, respectively, while EV/EBITDA multiples stand at 5.7x/4.1x for the same period. The P/E and EV/EBITDA multiples are well below the past 29 months' (post listing) average of 13.6x and 10.2x, respectively. We have valued the stock at EV/EBITDA of 7.5x FY15E (in line with global peers' one-year forward EV/EBITDA multiple), which is around 25 percent discount to the average multiple. However, we believe the stock could trade at a higher multiple compared to the global average due to conservative accounting practices, mainly related to over-burden removal adjustment. Besides, conservative accounting practices, CIL's return ratios are much above those of global peers. As a conservative practice, we have treated long-term provisions, which includes long-term employee provisions like gratuity and leave encashment, OBRA and mine closure provision, as debt. Our target price of Rs 374 is 21 percent above the CMP and therefore we have assigned a buy rating to CIL," says Nirmal Bang research report.
Source
3 comments:
On the other hand, Mayank Securities Private Limited(MCPL) bought 2,00,000 shares at Rs 26 on the BSE and bought 3,00,000 shares at Rs 26 on the NSE.Last trading session, the share closed at Rs 26, up Rs 1.80, or 7.44%. It has touched an intraday high and low of Rs 26.The share increased its 52 week high Rs 81.40 and decreased it’s 52 week low Rs 22.00 on 4th October, 2012 and 1st August, 2013.Recently, it is trading 68.06% below its 52 week high and 18.18% above its 52 week low
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