1 min read.Updated: 05 Apr 2021, 01:05 PM IST Edited By Staff Writer
Edelweiss remains positive on Coal India given that its larger subsidiaries are doing well, its increasing focus on e-auction volume, and e-auction fetching greater premiums.
In its recent report on Coal India (CIL), Edelweiss said that the company’s operating performance has improved as March 2021 sales volume shot up 12% on a yearly basis to 59.8 mt, highest ever for the corresponding month. Coal India's sales volume grew after three successive months of decline owing to a low base and improved traction from power plants.
While CIL has missed its FY21 production target of 660mt by a fair margin, production is down merely 1% YoY at 596 mt, Edelweiss said in its report. NCL is the only subsidiary to meet the production target for the second year in a row.
Despite a likely improvement in sales volume going ahead, Edelweiss expects a sharp uptick in inventory is expected to worsen cash accretion, which could be a major concern considering the escalation in working capital.
On the positive front, the brokerage believes that Coal India’s profitability would improve owing to growth in e-auction premium/volumes, and larger and more profitable subsidiaries such as Northern Coalfields Ltd (NCL) and Mahanadi Coalfields Ltd (MCL) faring better.
Besides, keener focus on more profitable e-auction volume and improving premium would aid profitability. That said, Edelweiss said that it is concerned about the high level of receivables, which hinder cash accretion and high level of inventory that leads to grade slippage and consequently lower realisation.
On the whole, the brokerage remains positive on the stock due to its sustained dividend yield in excess of 7%. It has maintained a ‘Buy’ rating with a target price of ₹185. The brokerage also remains positive given that CIL’s larger subsidiaries are doing well, the company’s increasing focus on e-auction volume, and e-auction is fetching greater premiums.