At least two brokerages upgraded Coal India Ltd. while others reiterated their positive stance after the company raised thermal coal price for the first time in a year and a half, shoring up efforts to pay for higher salaries.
The Kolkata-based state miner increased the price of thermal coal by Rs 125 per tonne for all consumers with effect from Jan. 9, it said in an exchange filing today. IDFC Securities said the hike came as a positive surprise, given that the world's biggest coal producer already imposed a levy of Rs 50 per tonne as coal evacuation charges in early December.
Overall, the two price hikes can generate additional revenue of Rs 8,900 crore for the full year and Rs 2,756 crore for the rest of the financial year.
These price hikes more than cover the higher cost of salaries the company agreed to pay its non-executive workers retroactively from July 2016, IDFC Securities and IIFL said in separate reports. In an exchange filing in October, Coal India said it expects the higher salaries to cost Rs 5,667 crore a year, on an average.
Stock Upgraded
IDFC Securities
- Upgrades the stock to ‘outperformer' from ‘underperformer'
- Raises target price to Rs 327 per share from Rs 255 earlier, implying an upside potential of 14 percent.
IIFL
- Upgrades stock to ‘buy' from ‘add'
- Raises target price to Rs 357, a potential upside of 24 percent
- Says this price hike drives a 12 percent upgrade in earning estimates.
Motilal Oswal
- Has a ‘buy' rating on the stock with a target price of Rs 335 per share
- Says this price hike should increase the company's EPS of Rs 7-8 per share to Rs 28 per share for FY19.
Impact On Sponge Iron Ore Players
Coal India's price hike will be negative for sponge iron ore players such as Prakash Industries Ltd., Tata Sponge Ltd. and Godavari Power Ltd. which use thermal coal as raw material.
In the non-ferrous space, Hindalco, NALCO and Vedanta also will be hit since power and fuel costs form 12 percent of their overall expenses, said Tarang Bhanushali, assistant vice president of research at IIFL Wealth.
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