Coal India at a turning point

Price hikes, evacuation charge and improving e-auction realisations expected to mitigate higher cost and drive earnings

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The confidence on Coal India is improving with the impact now behind it of slippage in coal grades and wage hike provisioning, which weighed on the performance in FY18. The price hike taken in Jan-Feb should take care of higher wage costs.

The improved volume outlook and better e-auction prices for its coal are likely to drive earnings in FY19. Further, the realisation for the coal supplied under fuel supply agreements (FSAs) at notified prices also improved by 2.3 percent in Q4.

Why is this important

Tight e-auction supplies due to diversion of coal to power utilities and pick-up in demand from end-use sector  such as cement should support the prices. Further, employee cost is also expected to be lower on a year-on-year basis.

Based on the above, street’s confidence on Coal India is improving.

Stock to be impacted

Coal India (CMP: Rs. 295, MCap: Rs. 182,715 crs, FY2020 EV/EBITDA: 5.5x)

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