COAL INDIA : Enjoying the whole Cake, best Investment !!!

Scrip Code: 533278 / COALINDIA

CMP:  Rs. 397.30; Buy at Rs. 370 for long term & at Current levels for short term
Short term Target: Rs. 415, 6 month Target – Rs. 435; STOP LOSS – Rs. 340; Market Cap: Rs. 2,50,949.15 cr; 52 Week High/Low: Rs. 422.35 / Rs. 289.00.

Total Shares: 631,63,64,400 shares; Promoters : 568,47,27,960 shares –90.00 %; Total Public holding : 63,16,36,440 shares – 10.00 %; Book Value: Rs. 52.7; Face Value: Rs. 10.00; EPS: Rs. 17.20; Div: 35 % ; P/E: 23.09 times; Ind P/E: 24.18; EV/EBITDA: 13.50.

Total Debt: Rs. 3,663.49 cr; Enterprise Value: Rs. 2,54,612.64 cr.

COAL INDIA LIMITED: CIL was incorporated in 1973 in Kolkata, India. It was formerly known as Coal Mines Authority Limited. CIL is a leading public sector undertaking engaged in coal mining & selling coal fines in India and is working on establishing its footprint globally through acquisitions. Company operates 471 mines in 21 coalfields across 8 states in India, which includes 163 open cast mines, 273 underground mines & 35 mixed mines – open & underground mines. CIL operates through its 9 wholly owned subsidiaries, of which 1 subsidiary is engaged in exploration and feasibility study analysis. Its subsidiaries include Eastern Coalfields Ltd (ECL), Bharat Coking Coal India Ltd (BCCL), Central Coalfields Ltd (CCL), Northern Coalfields Ltd (NCL), Western Coalfields Ltd (WCL) and South Eastern Coalfields Ltd (SECL). CIL has total reserves of 64.3 billion tons and proved reserves of 52.4 billion tons, of which extractable reserves stands at 21.7 billion tons. The company also provides middlings used by fuel plants, brick manufacturing units, cement plants, industrial plants, as well as for power generation. CIL coal fines/coke fines are used in industrial furnaces, as well as for domestic purposes. It serves primarily power, steel, cement, and fertilizer industries.

Investment Rationale:

The Group of Ministers (GoM) has approved the Draft Mines and Minerals Development Regulation (MMDR) bill which states that coal mining companies will have to share 26 % of their profits after tax of the previous year with the local public where the mining takes place. The current draft states that profits which is to be distributed should be calculated on Net Profit of each of the mining company including their subsidiaries, more clarifications on the matter is awaited and is believed that there could be significant impact of the bill on the EPS of the mining stocks (See the Table below). There are good chances of CIL to able to adjust prices over a period of time. It is believed that CIL will be able to acquire land & mines easily after the law in enacted. Coal India’s 26 % net profit will be 5 % – 5.5 % of its net sales and an impact of 10 % in FY12 EPS. Complete pass through of the wage hike and mining tax is a challenge and could act as an overhang on the stock performance in the medium term. CIL has access to 64.3 billion tons of reserves, the largest in the world. From this, 52.4 billion tons are based on Indian Standard Procedure (ISP) guidelines, representing 6 % share of the global proven reserves. CIL's profitability and earnings growth are strong, demand from power and other industries ensure favorable return, with upside from e-auction and washed coal. CIL is ramping up its washed coal capacity from 39.4 million to over 111 million tons, with the addition of 20 new facilities. Washed coal earns superior returns for CIL and volume is expected to grow from 16 million tons in FY11 (4 % of total) to 65 million tons by FY 16 (12.5 % of total).

IMPACTED COMPANY	IMPACT ON EPS (%)
COAL INDIA	10.00
HINDALCO	1.00
JSPL	3.00
JSW STEEL	2.00
NALCO	1.00
SAIL	11.00
SESA GOA	9.00
STERLITE IND	6.00
TATA STEEL	6.00

Outlook and Valuation:

India's coal demand for FY 10 stood at 600 million tonnes as against the domestic availability of 535 million tonnes; this gap was filled up by the import of 65 million tonnes. CIL is well positioned to capitalize the widening gap of demand & supply as it controls 80 % of the coal supply in India. CIL has been facing problems for its planned expansion, due to delays in requisite environment and forest clearances and land acquisition issues. In FY11 Coal dispatches to be at 425 million tonnes & 455 million tonnes for FY12E; Realisation to be of Rs. 1,183/tonne in FY11 & Rs. 1,321/tonne for FY12E; EBITDA to be Rs. 318/tonne in FY11 & Rs. 392/tonne in FY12E. Company to hold board meeting on 12th August 2011 for quarterly results; To hold AGM on 20th September 2011; Final dividend of 4 % (Rs. 0.40) on 8th September 2011; Book Closure for dividend from 12th September to 16th September 2011 

In my view CIL could report EPS of Rs. 22.10/sh and Rs. 26.50/sh, respectively. CIL’s stock price has corrected from high of Rs. 422/sh, on the back of the development on profit sharing. I maintain a positive view on the stock & believe that any further correction would be a good buying opportunity for long term holders, as for short term, stock could be bought with a price target of Rs. 415.

KEY FINANCIALS	FY11	FY12E	FY13E
SALES (Rs. Crs)	50,233.60	60,578.60	65,494.70
NET PROFIT (Rs. Crs)	10,867.40	13,905.95	16,742.73
EPS (Rs.)	17.30	22.01	26.50
PE (x)	22.70	17.97	14.90
P/BV (x)	6.80	5.69	4.50
EV/EBITDA (x)	13.50	11.40	9.70
ROCE (%)	26.40	37.80	33.90
RONW (%)	54.20	53.40	50.90

MAJOR EVENTS OF COAL INDIA

DATE	KEY EVENTS	MKT.CAP (Rs. Cr)	PRICE (Rs.)
4thNOV 2010	Listed on NSE/BSE	2,16,240.58	342.55
15thMAR 2011	Positioned no.3 in market cap	2,13,335.06	338.45
23rdMAY 2011	Positioned no.2 in market cap	2,31,020.87	365.40
8thJULY 2011	Fell down to 4th positon in market cap	2,28,652.23	362.65
12thJULY 2011	Regained 3rd position in market cap	2,30,673.47	365.30
27thJULY 2011	Regained 2nd position in market cap	2,52,117.51	398.95
8thAUG 2011	Will be included in SENSEX	------	-----

I would buy COAL INDIA LTD with a price target of Rs. 415 for the short term and Rs. 435 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 340.00 on your purchase.