Centrum is bullish on Coal India has recommended buy rating on the stock with a target price of Rs 365 in its research report dated October 11, 2018.
Centrum's research report on Coal India
We reiterate Buy on Coal India (CIL) with revised TP of Rs365 as we expect re-rating with market finally appreciating the structural improvements like improved coal quality, better evacuation, significant increase in auction linked volumes and sharp reduction in working capital which provide strong earnings/cash flow visibility. We also expect strong upside to e-auction realisations given the strong global coal prices, weak rupee and strong underlying demand (from both power & non-power) which is expected to mitigate the headwind of higher diesel prices. Concerns around divestment capping stock returns in near term are overdone as CIL trades at inexpensive valuations of 5.4x FY19E EV/EBITDA despite attractive return ratios and robust dividend yield.
Outlook
We expect CIL’s OCF to average ~Rs200bn during FY19-21E and expect Rs20/sh dividend for FY19E which implies strong 7.3% dividend yield at current levels. Stock is trading at FY19E adjusted P/E of 9.6x and EV/EBITDA of 5.4x which is well below its 5 year mean and is poised for re-rating with strong triggers of better volume growth, improved pricing, increasing auction-linked volumes and attractive dividend yield. Maintain buy with TP of Rs365. Key downside risk is unfavourable use of cash & lower volumes.
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