Coal India Ltd.’s move to raise prices of coking coal boosts prospects of higher dividends, and reflects the confidence that the world's biggest coal miner can announce hikes to offset cost escalations, multiple brokerages wrote in their reports.
Coal India’s unit Bharat Coking Coal Ltd. (BCCL) raised coking coal price by about 20 percent, which is likely to help parent Coal India earn an additional revenue of Rs 702 crore for the remaining part of the fiscal year 2016-17 and Rs 2,986 crore in 2017-18. Coal India said in a regulatory filing on Friday. BCCL is the largest producer of coking coal in the country and accounts for about 60 percent of the coking coal produced by Coal India.
Another unit, Central Coalfields Ltd., raised price of coking coal, which may help the government-owned Coal India earn an additional revenue of nearly Rs 89.98 crore for the remainder of the fiscal year and Rs 222 crore in the next fiscal, Coal India said in a filing on Saturday.
We find the price hike to be a long term positive as it indicates management’s willingness and independence in setting prices at par with international coal indices.JM Financial Report
The brokerage maintained ‘Buy’ rating on the stock with a target price of Rs 350.
Prices of coking coal, used by steelmakers and typically provided by Mozambique, the U.S., Canada and Australia, rose in 2016 after falling the year earlier. Imported coal prices spiked to $99/ton during the early part of November 2016, before falling to $83/ton currently after policy intervention by China, according to Kotak Institutional Equities.
Coal India’s stock has remained flat in the past one year and has gained only 11 percent in the last three years despite rewarding shareholders with hefty dividends, mainly on account of muted power demand amid sluggish economic activity and flat-to-declining coal prices.
Antique Stock Broking reiterated its ‘Buy’ rating on the stock, but raised the target price to Rs 385 per share from earlier Rs 356.
With this hike, we expect the company (BCCL) to contribute towards the dividend payout by Coal India starting financial year 2017.Antique Stock Broking Report
However, concerns remained over the impending once-in-five years wage revision, which could result in higher cost for the country's second-biggest employer.
Kotak Institutional Equities raised its target price for Coal India to Rs 325 per share from Rs 295 earlier, but maintained ‘Reduce’ rating citing concerns on impact of wage revision.
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