Coal India Ltd has been missing its monthly target for 11 consecutive months, indicates that it is going to miss its 600 MT annual target this year. The target for 18-19 is 773 MT and 908 (1 billion ambitious target) by 19-20.
Being the larget coal mine in the world, it commands a superior position. But there are many factors that come in way. Major one is the availability of railway rakes, high loading times, railway congestions, piling of inventory, accidents, delays in acquiring lands, clearing delays from govt. and forest dept. Apart from mining related issues, transporting the coal from mines to the power plants is another issue. Therefore, the co has invested in building 3 major railway corridors.
Current situation:
51 of the critical and super critical power plants are running out of stock. Having just 10 days against the required 22 days of stock. And since CIL is going to miss the target, India is going to have to import coal of the same amount as last year.
Pressure on margins:
Also, the co., per its 5 year salary and wages review has created provisions for increases amounting to 2000+ Cr. The emplyee cost has therefore increased by 11%. This is in addition to the increasing power expenses (rise in power tarrif) and contractual expenses. Thus putting pressure on the margins.
Outlook:
GOI has also encouraged commercial mining that will add to creating coal substitutes and curb the coal imports thus saving huge forerign exchange. Meanwhile, CIL has to find ways to address these issues if it has to reach its 1billion tonnes target by 19-20.
Investment thesis:
Pressure on margins:
Also, the co., per its 5 year salary and wages review has created provisions for increases amounting to 2000+ Cr. The emplyee cost has therefore increased by 11%. This is in addition to the increasing power expenses (rise in power tarrif) and contractual expenses. Thus putting pressure on the margins.
Outlook:
GOI has also encouraged commercial mining that will add to creating coal substitutes and curb the coal imports thus saving huge forerign exchange. Meanwhile, CIL has to find ways to address these issues if it has to reach its 1billion tonnes target by 19-20.
Investment thesis:
At a price target of 400, this stock can show volatility and ample buying opportunity in the next 18-20 months. Accumalate on declines and keep an eye on the monthly production levels. BTW, the co has defered its decision on the dividends, sending a negative signal to the market.At Rs. 303, it is a hold.
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