Coal India: no cause for higher valuations
Analysts are not optimistic about Coal India achieving its targets this year
The Coal India Ltd stock has declined from its high in June and currently trades at 13.5 times its estimated earnings for the current fiscal year. Shareholders seem to have realized that questions about project clearances and land acquisition will not be resolved quickly. Nor is the company’s offtake going to improve overnight.
Nevertheless, even though the valuation may appear relatively cheap, there are hardly any reasons for it to improve soon. Sure, June quarter results were better than Street expectations, but that’s only marginally.
Consolidated revenue last quarter increased by 8% over the same period last year to ₹ 17,799.54 crore. That was helped by a combination of better sales volumes and average price realization, both registering about 4% growth. A Bloomberg poll of analysts had pegged revenue at ₹ 17,540 crore. The outperformance has come from better realizations, note analysts, given the fact that volume numbers were anyway known earlier.
Net profit growth was also consistent at 8% to ₹ 4,033 crore, again marginally better than estimates. Among others, net profit growth was helped by a small decline in tax outgo compared with the year-ago period. What offers comfort is the fact that the company’s revenue and net profit growth last quarter were better than in March and December quarters.
Still, what remains paramount is the production and offtake numbers where its track record has been hopelessly disappointing. Recent numbers show that the company has again missed its targets. For April-July, the firm achieved 95% and 92% of its production and offtake targets, respectively.
Analysts are not optimistic about Coal India achieving its targets this year. As JM Financial Research said on 4 August, the company will have to grow its production and offtake by 11.9% and 14%, respectively, for the rest of the year if it is to reach its target. As against that, JM Financial estimates Coal India’s production and offtake growth would be 8.8% and 8.3%, respectively, for the rest of the year.
All this is more or less factored into the share price. Investors can hardly complain—despite the recent fall, the stock has still outperformed the S&P BSE Sensex by a good margin this year. Price hikes, if they happen, will be a bonus.
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