Higher Sales, Prices to Power Up Coal In­dia

Of 9-11% in FY17-19 and 6.2% div­i­dend yield to sup­port stock

The Economic Times - - Companies: Pursuit Of Profit -

ET In­tel­li­gence Group: Coal In­dia’s fi­nan­cial per­for­mance in the De­cem­ber 2016 quar­ter was weak when com­pared with that in the cor­re­spond­ing quar­ter of the pre­vi­ous year. In ad­di­tion, there are con­cerns over the em­ployee wages which are due for ne­go­ti­a­tions and volatil­ity in in­ter­na­tional coal prices. But, in the com­ing quar­ters, it may be able to im­prove per­for­mance given an uptick in sales vol­ume and an up­ward trend in prices.

In the De­cem­ber 2016 quar­ter, sales vol­ume rose by 4% year-on-year and by 23% com­pared with the pre­vi­ous quar­ter. The com­pany sells nearly 85% coal through reg­u­lated chan­nel to power plants where prices are fixedan­nu­ally.There­main­ingis­sold through elec­tronic auc­tion where price fol­lows in­ter­na­tional trend.

With in­creas­ing in­ter­na­tional prices, de­mand for the e-auc­tion im­proved. Sales vol­ume through this routein­creasedby66%year-on-year in the De­cem­ber quar­ter and con­trib­uted over 18% to rev­enue com­pared with 11.3% in the year-ago quar­ter. The trend may con­tinue in the com­ing quar­ters as well, which is a pos­i­tive for coal In­dia as re­al­i­sa­tion in e-auc­tion is around 20-25% higher than coal sold on con­tracts.

Em­ployee wages is a ma­jor fac­tor for Coal In­dia since it con­sti­tuted nearly 44% of the com­pany’s rev­enueinthe­first­ninemonth­sof FY17. If the com­pany were to im­ple­ment 10-15% in­crease dur­ing the forth­com­ing round of salary ne­go­ti­a­tions, it may dent earn­ings.

An­a­lysts ex­pect Coal In­dia to de­liver 9-11% earn­ings growth from FY17-FY19. At Wed­nes­day’s clos­ing price of ₹ 320.8, the stock traded at 18.5 times FY17 earn­ings, which ap­pears ex­pen­sive for this kind of growth and will limit the up­side. But, a high FY17 div­i­dend yield of 6.2% will also limit the down­side.

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