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Coal India Ltd
Mining & Mineral products | NSE : COALINDIA
Coal India (CIL) is one of the largest coal producers in the world. In FY22, CIL produced 623 million tonnes (MT) while offtake for FY22 was at 662 MT. CIL has 345 mines (as on April 1, 2021) of which 151 are underground, 172 open cast and 22 mixed mines.
Global thermal coal prices have remained at an elevated level over last few months and is likely to have a positive rub-off on Coal India’s e-auction realisations. Hence, we expect Coal India’s consolidated operating margins to firm up and hover ~24% level in next couple of years (22.5% in FY22)
We value Coal India at 4.5x FY24E EV/EBITDA and arrive at a target of ₹ 225, maintaining our BUY rating on the stock.
Over the last couple of months, metal prices have witnessed a substantial correction due to Covid led clampdown in China. Both ferrous and non-ferrous prices have witnessed a steep decline and fallen sharply from their recent highs. In the current challenging scenario, we have a positive view on companies whose EBITDA margins are relatively protected even during this current meltdown in metal prices. In the large cap space, we remain positive on Coal India (CIL), while in the midcap space we remain positive on Ratnamani Metals and Tubes (RMTL). Global thermal coal prices have remained at an elevated level over last few months and is likely to have a positive rub-off on Coal India’s e-auction realisations. Hence, on the back of strength witnessed in global thermal coal prices, we remain positive on Coal India. On account of its superior capabilities in domestic Industrial pipes and tubes segment, historically Ratnamani Metal and Tubes (RMTL) EBITDA margins have remained relatively stable even during challenging times. Furthermore, Ratnamani Metals and Tubes also has a healthy order book position, which provides healthy visibility and augurs well for the company. Hence we also remain positive on Ratnamani Metals and Tubes (RMTL).
Over the last few months, Covid, in general, has slowed down Chinese growth and as China is the largest consumer of majority of metals it has adversely impacted global metal prices Furthermore, China’s zero tolerance approach towards Covid-19, which has led to cycle of unpredictable, stop-start restrictions, thereby also impacting metal demand in the region.
Metal prices (both ferrous and non-ferrous) have witnessed a sharp decline and have fallen sharply from their recent highs. During the last one month itself, domestic HRC prices have corrected by ~15% are currently hovering at ~₹ 59500/tonne. Similarly, over the last one-month aluminium prices on the LME have witnessed a declined of ~16% and are currently hovering at ~US$ 2466/tonne. Copper prices on the LME have also witnessed a decline of 12% during the last one month and are currently hovering at ~US$8397/tonne. Lead prices on the LME have witnessed a decline of 11% during last one month and is currently hovering at ~US$1946/tonne. Zinc prices on the LME witnessed a decline of 2% during the last one month and are currently hovering at ~ US$3710/tonne.
On the back of headwinds faced by metals and mining sector, Nifty Metal index has underperformed broader markets and is down ~17% YTD in CY22 vs. ~10% decline in Nifty. In current challenging times, we remain positive of Ratnamani Metals and Tubes (RMTL) and Coal India (CIL). RMTL has an impressive capital allocation track record and best in class operating margins and return ratios, while Coal India’s e-auction realisations are likely to benefit from the elevated global thermal coal prices. We value Ratnamani Metals and Tubes at 25x FY24E EPS and arrive at a target of ₹ 2950, maintaining our BUY rating on the stock. We value Coal India at 4.5x FY24E EV/EBITDA and arrive at a target of ₹ 225, maintaining our BUY rating on the stock. We maintain our forward numbers (FY23E and FY24E) and BUY rating for both the stocks (Coal India and Ratnamani Metals and Tubes).
| Particulars (₹ crore) | Amount |
|---|---|
| Market Capitalization | 235,416.2 |
| Debt (FY22) | 3,310.0 |
| Cash (FY22) | 29,179.0 |
| Enterprise Value (FY22) | 86,293.0 |
| 52 week H/L (₹) | 543.6/356.4 |
| Equity Capital | 6,162.7 |
| Face Value (₹) | 10.0 |
| Particulars | FY19 | FY20 | FY21 | FY22 | 5 Year CAGR(FY17-FY22) | FY23E | FY24E | 2 Year CAGR (FY22-FY24E) |
|---|---|---|---|---|---|---|---|---|
| Total Operating Income | 99,585.6 | 96,080.3 | 90,026.3 | 109,713.5 | 5.9 | 111,030.9 | 116,821.5 | 3.2 |
| EBITDA | 25,005.9 | 21,581.3 | 18,573.7 | 24,690.6 | 15.1 | 26,599.9 | 27,881.5 | 6.3 |
| EBITDA Margin (%) | 25.1 | 22.5 | 20.6 | 22.5 | - | 24.0 | 23.9 | - |
| PAT | 17,464.5 | 16,700.4 | 12,702.4 | 17,378.5 | 3.8 | 18,648.7 | 19,382.8 | 5.6 |
| EPS (|) | 28.3 | 27.1 | 20.6 | 28.2 | - | 30.3 | 31.5 | - |
| EV/EBITDA (x) | 3.2 | 4.2 | 5.2 | 3.3 | - | 3.3 | 3.4 | - |
| RoCE (%) | 86.3 | 54.6 | 42.3 | 52.0 | - | 48.2 | 44.7 | - |
| RoE (%) | 66.0 | 51.9 | 34.8 | 40.3 | - | 36.8 | 33.6 | - |
| - | - | - | - | - | - | - | - | - |
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