Coal India may get re-rated on consistent growth

MUMBAI: In October 2010, the country’s largest coal producer, Coal IndiaBSE -0.40 %, came out with its initial public offer of Rs 15,500 crore, the largest till date. Despite the size, it was oversubscribed 14.2 times. On the day of its listing, the stock soared 40% higher than its IPO price to Rs 340. But, since then, it has been trading at almost the same levels.

The primary reason for this underperformance has been the muted production — much lower than the company’s targets and what investors had anticipated. Its production growth in FY13 was 3.8%, which dropped to 2% in FY14. This resulted in lower sales and earnings in the last two fiscal years. Now, after years, production growth seems to have picked up.

In November, production grew by 13.3% year-on-year to 44.42 million tonnes. This was the second consecutive month of double-digit production growth for the company after several months of single-digit growth. Its production growth in October was 14.8%. The higher number was driven by 14-30% y-o-y production growth across its subsidiaries as a result of capacity expansion and starting of new mines. According to analysts, the new government’s willingness to speed up project clearances is beginning to yield results.

The company’s production growth since the new government took charge (from June 14 to November 14) has grown by 8.3%. The growth has picked up momentum in the last two months with 14% y-o-y jump. However, while production is still lower than the targets set by the government, the gap between the monthly production and the targets is narrowing.

“The uptick in Oct-Nov corroborates our view of an expected pick-up in production/offtake through second half of FY15 as the dry season sets in and government’s impetus to expedite project clearances begins to yield results,” said Anirudh Gangahar of Nomura in a recent report. For investors, a higher offtake will be reflected in sales and earnings. With improved rail rake availability, the offtake has improved but not at the pace of production.

If the company reports consistent growth in production and offtake numbers, the stock could get re-rated by analysts. The stock has gained 3% since it declared its November production and offtake numbers. On Monday, its closing price was Rs 363.

Source:sEconomic times