Analysts Say This May Weigh On Coal India Earnings In 2019-20

Analysts cut target prices for Coal India Ltd. and lowered their earnings estimates for this year as they expect a fall in global coal prices to weigh on the financials of the world’s largest miner of the fossil fuel.

Global coal prices have fallen nearly 25 percent over the last three months and that may lead to a drop in Coal India’s e-auction prices, JPMorgan said. While the fall in e-auction prices may not be severe, it will weigh on the company’s financials in the second half of 2019-20, as per the brokerage’s report after Coal India’s meeting with analysts on Monday.

Also, CLSA Ltd. doesn’t expect the state-run miner to hike coal prices.

Still, analysts retained their ratings on the company and reiterated the management’s confidence of achieving 8 percent growth to meet its production target of 660 million tonnes for 2019-20. Though some analysts termed Coal India’s deferred five-year production plan an “uphill task”, they found comfort in its inexpensive valuation and dividend yield.

Here’s what analysts have to say about Coal India:

CLSA

• Maintains ‘Buy’ with target price of Rs 290, implying potential upside of 13 percent.
• Optimistic on volume growth.
• No visibility on price hikes; benign cost outlook.
• Lacklustre earnings profile over the next two years.
• Stock trades at reasonable 10 times FY20 price-to-earnings; attractive dividend yield of 8 percent.

Edelweiss Securities

• Retains ‘Hold’ with target price of Rs 263, implying potential upside of 3 percent.
• The production target of 1 billion tonnes delayed by another two years till FY25.
• Rs 100-billion capex estimated in FY20 is likely to be funded via internal accruals.
• Dividend yield, which is likely to remain at 5 percent, is a positive.
• Sees risk-reward balanced for Coal India.

JPMorgan

• Maintains ‘Neutral’ and cut target price to Rs 260 from Rs 265—a potential upside of 2 percent.
• Cuts FY20 EV/Ebitda multiple to 5.5 times versus 5.7 times on weaker coal price outlook.
• Doesn’t expect e-auction prices to collapse like in FY17, but prices in second half need to be monitored.
• Government may lower stake in Coal India given its divestment target.

IIFL Institutional Equities

• Retains ‘Buy’ with a target price of Rs 321—a potential upside of 25.6 percent.
• Optimistic on volume guidance of 660 million tonnes.
• Linkage auction to partially offset lower e-auction volumes.
• Critical railway lines operational but running at low utilization.
• Committed supply under fuel supply agreement, linkage auction to impact blended realisations.

Kotak Securities

• Maintains ‘Buy’ with a target price of Rs 290 apiece—a potential upside of 13.5 percent.
• Employee costs likely to remain flat in FY20.
• Valuations remain attractive at 7 times PE with 10 percent dividend yield estimated on FY20 earnings.

About 68 percent or 19 of the 28 analysts covering the Coal India stock have a ‘Buy’ rating. The Bloomberg consensus target price is at Rs 299.9, which implies a potential upside of 17 percent.