Coal India dividend payout so far in FY19 stands at ₹13.1/share, as compared to ₹16.50/share in FY18 and ₹19.9/share in FY17
Interestingly, Coal India's dividend payouts are lower in a year when profits, estimated at ₹16,416 crore, are relatively higher
Dividends have always been Coal India Ltd’s strong suit. This year, however, isn’t looking bright for investors on this count. The company’s interim dividend of ₹5.85 per share, announced last week, is lower than the Street’s expectations. With this, the coal producer’s cumulative dividend so far for this fiscal year stands at ₹13.1 per share. For FY18 and FY17, Coal India's dividend stood at ₹16.5 and ₹19.9 per share, respectively.
Interestingly, payouts are lower in a year when profits are relatively higher.
“Year to fiscal year 2019 payout of 54% (of net profits) is far lower than that for the past three years when the payout exceeded 125% on every instance," said analysts from Edelweiss Securities Ltd in a report on 15 March.
According to Edelweiss, the company’s annual capital expenditure (capex) requirement of ₹12,000–15,000 crore to maintain volume growth of 5% is likely to keep dividend yield muted hereon. Analysts are not excited about the growth prospects either.
“The benefits due to capex are not obvious as the incremental profit due to increased production is at best enough to cover cost inflation," wrote analysts from HDFC Securities Institutional Research in a report on Coal India in December.
So, unless the company makes up by paying a final dividend later, investors will feel let down.
Since FY14, which is when Coal India started making large payouts, dividends have always been announced before the end of the fiscal year. As such, chances of a final dividend being announced later are low.
This also affects the dividend yield expectations on the stock, which was one of the reasons some investors stayed put. Despite the recent recovery in the company’s shares, the Coal India stock has underperformed the Nifty 100 index so far this year.
Note that this is also a year when profitability has been strong. According to Bloomberg, Coal India is estimated to post a consolidated net profit of ₹16,416 crore. This is more than double the FY18 profit. “If such a turnaround was witnessed in profits of a private sector company, you would have seen the stock fly high," said an analyst, requesting anonymity.
One of the reasons for the lack of excitement is the increase in the stock’s free float. The government’s offer to sell a 3% stake in the company, leading to an increase in free float, has weighed on investor sentiment. Further, Coal India is included in both the Bharat 22 Exchange Traded Fund (ETF) and CPSE ETF, and there have been frequent sales of these funds.
As a result of all this, Coal India shares trade at an undemanding enterprise value to Ebitda (earnings before interest, tax, depreciation and amortization) of 4.7 times for FY20, based on Bloomberg data.
Nonetheless, given the circumstances, merely being available at lower valuations isn’t enough to ignite a fire in Coal India shares.