Coal India – Book Profits
Investors can consider booking profits in the Coal India (CIL) stock. At the current market price of Rs 360, the stock’s valuations seem expensive compared with global peers.
It trades at an EV/EBITDA of 10.3 times as against 6-8 times of global peers such as Peabody Energy, China Coal Energy, China Shenhua Energy and Yanzhou Coal. On price-to-earnings basis, CIL trades at 15.4 times compared to 6 to 10.5 times for global peers.
A possible impact on Coal India’s profitability due to new fuel supply agreements (FSAs), regulatory uncertainties surrounding its business and declining global coal prices may make current valuations unsustainable.
Coal India is one of the largest coal-producing companies in the world. It has 11 direct and indirect subsidiaries, of which nine are involved in coal production. It has proven reserves of 52 billion tonnes (47 per cent of India’s proved reserves) and extractable reserves of 22 billion tonnes. 72 per cent of CIL’s output is absorbed by power producers, with the rest being used by steel makers, cement makers and others.
Coal India sells its output at contracted prices that are at a substantial discount to global prices.
On a consolidated basis, CIL registered 24 per cent growth in sales in FY12 to Rs 62,415 crore compared with growth of 12 per cent in FY11 and 15 per cent in FY10. Its net profit grew 36 per cent in FY 12 to Rs 14,788 crore compared to 12 per cent growth in FY11.