Prabhudas Lilladher has upgraded Coal India (COAL) to 'Buy' from 'Accumulate' with price target of Rs 405.
Commenting on the investment rationale, the stock broker said, ''Coal India price fell by ~25% from its peak and has underperformed the indices. We believe that the sharp fall was not only due to change in investor sentiments, but also due to combination of concerns like overhang on the proposed stake dilution by the GOI and weakness seen in the E‐auction segment.
We believe that the stake dilution would remain as an overhang in the immediate period, though we do not think that GOI would divest the stake at the current depressed valuations, especially when significant improvements are seen in the company's operational performance and efforts are in place to achieve ~900m tons offtake target in 2020.
On the E‐auction front, while the realisations have been lower on account of fall in global prices, company is offering higher quantities to offset the impact of lower realisations due to fall in global prices. Govt's recent move to allow additional quantity of 10m tonnes to power sector through E‐auction window would further enable COAL to prop up supplies in high margin E‐auction route. We upgrade our rating to 'Buy' from 'Accumulate' with TP of Rs 405, EV/EBITDA of 8x FY17E.''
