ICICIdirect has recommended 'Buy' on Coal India (CIL) with target price of Rs 320 as against current market price (CMP) of Rs 286 in its report.
Commenting on the investment rationale, the stock broker said, ''Coal India (CIL), a Maharatna public sector enterprise, is engaged in mining coal, the key material used in generating thermal power. CIL is the largest coal producing company in the world with huge coal reserves (reserves/production at 40 years). The company also enjoys a dominant status in the domestic market wherein it contributes 81% of India’s total coal output and on the demand side meets 65% of domestic consumption requirements.
Furthermore, by virtue of being a majority open cast miner (90%), CIL also realizes healthy operating margins, thereby enjoying consistent cash flows. FY13 was inspiring wherein it witnessed healthy growth in production (3.8% YoY) and sales (7.4% YoY).
However, FY14 has been challenging and output has been hit by strikes, cyclone, etc. Nevertheless, CY14 has started on a positive note for CIL wherein policy related changes (relaxation of rules to allow up to 50% expansion in coal projects with annual production up to 8 MTPA) and granting of approvals for 23 projects reflected the strong thrust the government has to increase the domestic coal supply.
We believe a relatively swift clearance process and introduction of the mine-developer-operator approach will aid CIL to enhance its output levels. We have modelled coal sales volume growth at 3.7% CAGR for FY13-16E. We are initiating coverage on CIL with a Buy rating and a target price of Rs 320.''
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