The Global Brokerage and Investment firms, CLSA and Macquarie have maintained bearish outlook on Coal India. This was after the company’s major arm coalfields announced a 20 percent hike in the price of coking coal, the coal essential to produce coke and an irreplaceable unit for production of steel.
The price hike is done looking at a substantial increase in price hike of coal in the international market. The price for Coal India will be beneficial as they will get an additional income of INR 702 crore in this current financial term of India. If Coal India manages to achieve their target sale for the year 2017-18, they will earn an additional income of INR 2,986 crore.
CLSA said that Coal India’s decision to increase the price of coking coal and few different steel grades of coal starting January 14 will hamper the prices for the upcoming fiscal year. That said, there will be combined, one percent hike in FY17 and four percent hike in FY18. They further said that the price hike for FY18 is higher than they anticipated, but the hike is not likely to occur as there are already two instances of price hikes in FY17. The e-auction prices have seen major improvements in the 2nd-quarter.
CLSA then increased e-auction ASP assumptions, which resulted in a massive 6-8 percent rise in FY17-19 EPS estimates. Due to this increase in EPS estimates, the target price has been increased from INR260 to INR285. Meanwhile, the CLSA has maintained ‘SELL’ rating as they found the valuations to be expensive. They also said – “While this event is certainly a positive and could boost near-term stock performance, at a 16x FY18 PE it is expensive on our upgraded estimates in the context of an 8% EPS CAGR over FY17-19CL”.
On the other hand, the leading Investment group Macquarie said that the benefit from the price hike for the fiscal year would be limited to only 5 percent of EPS. The benefits are calculated based on Coal India Limited’s aspiring volume targets and ignoring the part of the volumes that are already sold in the market for the actual market price. They also said that improving the sharp correction in coking coal could weaken the chance of earning any profits in FY18. Macquarie retained their ‘Underperform’ rating with the target price flashed at INR252. The group is also expecting that they are expecting big dividends in the month of Feb, which could provide support to their stocks in the near future.