Nomura Financial Advisory and Securities has maintained 'Buy' on Coal India (CIL) with target price of Rs 320 as against current market price (CMP) of Rs 280 in its reports.

Commenting on the investment rationale, Nomura said, "Coal India's (CIL's) board of directors has, in a meeting on March 20, approved a 30% hike in the 'add-on price' of coal (Rs 300/ton to Rs 390/ton) produced from Eastern Coalfields' (ECL) Rajmahal mine; the price hike is effective from Apr. 1, 2014. Further, the release states that the add-on price has been revised to rationalize the coal price from the mine due to grade reclassification and price adjustment.

CIL has demonstrated its ability to raise effective prices twice in FY14 (hike in notified coal prices in end-May 2013 and a hike in sizing charges for non-coking coal + notified price of coal from Western Coalfields in mid-December 2013), besides raising surface transportation and loading charges in November 2013. While the revision in Rajmahal coal prices is again a one-off move, we believe CIL would be in a position to effect a more broad-based hike in notified coal prices in mid-2014 to sustain margins (management typically looks to keep EBITDA/ton in a target range).

Maintain Buy; our earnings forecast for CIL are under review. On FY15F normalised earnings (adding back OB removal adjustment to EPS and EBITDA + adding surface transport & loading charges to EBITDA), the stock trades at 8.9x P/E (EPS of Rs 31.4) and 4.8x EV/EBITDA (10.7x P/E and 6.3x EV/EBTIDA on reported earnings).''

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