Doubling over 10 yrs = 7.5% + dividends is an above average return considering the market apathy towards PSUs. If and when they catch market fancy, it will look even better
As a comparison Nifty and Sensex have given ~6% returns in the last 10 years
power grid ipo price was rs 52 ,now the price is 161 , last year price had gone up to 216 , plus all the minor dividends over the years ,the performance is not bad at all.
coal india with all its dividends over the years should still be around its ipo price i think.
the secret is employee cost and number of employees . Psu with low employee cost / employee numbers and low receivables do much better for example rites
cochin shipyard is also exhibiting these characteristics.
psu can be a good short term buy but evidence in our markets clearly show that they are definitely not long term compunders.
the reason for poor performance is bad capital allocation.
Posting this as an example of bad capital allocation
so nalco did pull out after a few years but imagine what damage it does to investor sentiment.
If the sole reason for buying Coal India is div yield then in my opinion ITC and TV Today may offers much better prospects and increase in long term value of investment.
| Dividend | Mar-08 | Mar-09 | Mar-10 | Mar-11 | Mar-12 | Mar-13 | Mar-14 | Mar-15 | Mar-16 | Mar-17 | Mar-18 | Mar-19 | Current div yield |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Coal India | -1,995 | -1,705 | -2,210 | -2,583 | -7,429 | -7,907 | -24,243 | -15,596 | -17,307 | -12,353 | -10,220 | -8,113 | 8.99% |
| ITC | -1,170 | -1,343 | -1,449 | -3,866 | -3,503 | -3,592 | -4,239 | -4,876 | -5,133 | -6,994 | -5,952 | -6,519 | 5.06% |
| TV Today | -5 | -5 | -5 | -5 | -5 | -5 | -4 | -6 | -9 | -10 | -12 | -13 | 9.68% |
As the div amount is continuously decreasing in Coal India, while the same is at stability/increasing in ITC and increasing in TV Today. Further, both the latter companies are doing better in terms of overall growth which may result in increased market price and also do not have any such government intervention which may hamper the dividend amount in drastic manner.
I am also currently looking for better dividend yield companies but with stability, if i have missed out any info or data please let me know as i am just a novice in the investing field.
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There is a difference between dividend yield and payout ratio. In case of ITC and TV Today, though yield is 5% and 10% resp., the payout ratios are 85% in both companies whereas in coal india, yield is 9% at a payout of 45%. So it is not comparable this way. The key is coal’s return on this retained earning/reinvestment. If they manage to do 50% of past return ratios, it would outperform index return in the next decade at this cheap valuation.
For ITC dividend payout ratio is around 85% for this year as reinvesting money in business under current Covid impacted environment is not a good bet rather distributing it to shareholder is great. Usually ITC maintains 50% dividend payout ratio. If one sees historical performance then ITC is making decent growth earning and so the same will again be reflected in future dividend payouts.
For TV today, i think div payout ratio for past few 6-7 years is just 10-12% only. Request you to correct me if i have put some wrong data.
For Coal India since past 5 yea years the div payout ratio has been more than even 100%, just for this year its 45% due to double digit increase in sales whilst expense aren’t increased as such and that is why div payout ratio came to 45%. I highly doubt such a growth in sales or such profit can be continues in future, and if it happens and dividend payment in absolute terms remain at near current levels then again its div payout ratio will come to nearly 100%.
Also, these PSUs are largely affected by the govt. requirements so that cast a doubt on such huge outflows every year.
You stated earlier that TV Today & ITC are dividend plays for which i responded to consider payouts as there is no reinvestment return factor. you are considering different yard sticks for measurement of different financial year and companies and hence there is contradiction. If you consider, 10-12% payout and 50% payout for TV Today and ITC, their yield (long term average) is only 1.4% and 3% respectively. This is no where near long term average yield of coal which is 15% and last year’s yield of 9%.
Also, ITC has not made payout changes due to COVID but is just a coincidence that it announced in March. ITC has made a change in its dividend distribution policy as all their investments are almost done for the medium term. Next few years, we will get 85% payout and it will continue untill they find next big investment plan.
That’s why i put dividend amount in absolute figures and there increasing and decreasing trend in my first post.
If one go by long trem average div yield, then it is based on historic price of shares which is in continued down trend for coal since past many years but the same is not the case with ITC. So comparing the same is not right for these companies.
I will rest my case on these points only as i am still in learning phase might be missing bigger picture. Thanks for sharing your views, it will help me in digging deeper in understanding these companies. 
Again you are changing measuring yard stick. I used long term average as u have taken the long term payout avg for ITC and TV Today. Pls keep it simple…9% yield for coal is much higher than that of ITC and TV Today when payouts are disproportionate.
Buy or sell decision is based on current market price Vs intrinsic value and hence CMP is what matters. As Howard Marks says “No asset is so bad that there’s not a price at which it’s attractive for purchase, and no asset is so good that it can’t be overpriced”.
It is quite easy to hate PSUs due to past decade’s performance but valuation does matter and just if the future events pan out to be bad instead of worst, there will be significant returns from these stocks.
ITC has fallen 40% in the past 3 yrs and 8 yr return is only dividend of 2.5%. And till 2013, ITC was darling of the market like HUL now and used to double every 5-7 yrs even if bought at peak.
I am just trying to convey the fact that cycles do exist.
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Below are my notes on Coal India , in case anyone would like to have a look:
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assuming average eps of last 5 years(17.0,14.95,11.34,28.34,27.12). Also assuming that by FY2022 everything gets back to normal and the company is able to achieve FY20 topline and in FY22. The average EPS of the last 5 years is around 19 rs, and if the company’s last 5-year average payout ratio is 98%. This stock is trading at 15.7% leading dividend yield. (19/121). Very cheap.
Clearly the CAPEX in the renewable space has to decrease because of COVID and other things. DISCOM issues still remain but it looks very attractive. Correct me if i’m wrong anywhere.
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Terminal Value of business!!
Check if all profits are returned to shareholders, and any cash left in the company from before is also distributed to shareholders, how many years will be needed to recoup investment with a decent yield added? How would Coal India be valued a decade from now? Will Coal for thermal plants or any other industrial use still be available? Will Coal India move to some other business other than extracting the coal?
The market is considering this business is terminal decline and imminent shutdown in the next decade or two.
One other thing - Entry of Private players into coal mining & deregulation of licenses. What will happen when efficient profit oriented private guys start mining. Coal India has a lot of legacy bloat (high salaries), lots of cross subsidizing by govt, coal leakage/pilferage issues, etc. Will Coal India be able to maintain same profits with a level playing field?
Myself i wont be able to answer all these queries efficiently. Some of these issues are highly complex with lots of variables to measure. These might be a drag if you have limited bandwidth. I was a IPO shareholder, held it for 5+ years, got good dividend, but price stagnation finally made me exit in 2017/18. As of now no positions.
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Thanks Ashwind,
Correct me if i’m wrong anywhere because my experience in the market is of only 1 year.
I dont think that renewable energy would be a main source of power till 2030-2035 because of the storage issues and installation cost. Who is going to invest heavily in Renewable energy in India at this movement?
The GOI will need some cash to meet its fiscal expenditure. CIL has been profitable PSU and the payout ratio is more than 100% from 2014-2018 (excluding 2019 because of tax issues and 2020 because of COVID).
My horizon is till 2025 and till 2025 I dont see any significant growth in this renewable energy space so the revenues and margins will sustain. Rs 19 avg EPS of the last 5 years into next 5 years is 95 rs in dividend. The investor will not lose capital from here but yes there is an opportunity cost attached to it.
I think this is an value buy at this movement. @ 14% future dividend yield vs 5.10-6% Fixed deposit in bank.
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Thanks Ashwind,
I agree with all the issues you have mentioned. I need to add one more point here.
Consider yourself as a private player who is going to bid for coal mines. Will, you bid for it given the fact that coal will not be used to generate power in the next decade or so.
It takes time for the private guys (3-5 years) to start selling coal because there are lots of regulations to be followed as per A.K.JHA former CMD.
The government is allowing anyone who has the capital to bid for the mines (1.is the government desperate to sell the mines? 2. are the private guys that stupid to buy it given the fact this commodity is going to die slowly)
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Let us not kid ourselves. When developed countries are still bringing new coal mines into production, coal is not going anywhere any time soon in a country like India, at least for the next 20 years. While ESG concerns can keep the price low the dividend yield vs the prevailing interest rates in the country make it attractive
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Can some one update on Coal India dues from Power Sector? There seems to be no update anywhere after July 2020 (https://www.business-standard.com/article/companies/coal-india-dues-from-state-gencos-rise-to-rs-22-000-cr-amid-weak-demand-120071300930_1.html) when dues were to the tune of INR 20,000 crores.
How can this be checked from Ministry of Coal website?
Why I think Coal India can turn into 3X Multibagger in next 7 years.
CMP - INR 116
- Coal Requirement for India will continue to go up. Coal India produces 600MT and we still import 300MT a year. With private players coming, I don’t see this affecting Coal India for next few years. Coal India is targeting 1000MT by 2025 (For comparison China consumes 6X more coal then India)
- Dues from Power sector have come down and as lockdown opens this should normalize.
- They managed to stay EBITDA positive in June. And I expect EPS to be around Rs. 20 this year.
- Most likely dividend of INR 12+ would be maintained. Assuming they pay INR 12 as dividend and you make 8% Compounded on that. That’s INR 136 in the next 7 years. In most likelihood dividend should be far better.
- Assuming the economy normalizes and EPS after 7 years is around INR 30. I would believe that the stock price should be around INR 270 - INR 300.
So INR 136 (Dividend) + INR 270 (Stock Price) = INR 406 (Next 7 years fairly positive we are looking at 3.5x bagger here).
My Thread on same - https://twitter.com/chaitanyakha/status/1309009895568670725
Risks (Afterthought):
- Pandemic gets worst and we see another lockdown. God save the economy if that happens.
- Capex of INR 10,000 crores for 2020-2021. Hard to put on hold.
- Government Selling Stock in Open Market. Ideally Coal India should just buyback.
Feedback invited.
Disclosure - Invested. And do your own research. This is just what I think. No suggestions / tips. I am not a SEBI advisor.
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I agree with you. Just wanted to add two things here
1.The terminal value should be less, given the fact that Thermal energy will be replaced by renewable.(if the cost of renewable energy comes down significantly)
2.Private players should not be a problem because it takes time to set up everything and who will want to invest in a commodity whose demand is going to come down slowly.
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Yep. One more thing troubling me now is
“CIL to invest over Rs 1.22 lakh cr by 2023-24 : Coal minister”
This effectively means around 30,000+ crore capex a year. Only way that is possible is through DEBT.
Let’s see how this turns out.
In the last 5 years, the average dividend is around Rs. 11,000 crore. In the coming years if they cut dividends by half to meet their CAPEX expenses of Rs.30,000 + crore and rest by debt and surplus then the stock is very expensive at this price. Last 5 years, the average CAPEX is 7000 crores.
thoughts?
Unsure. Two different things are being said. Coal Ministry says Capex of 30,000 crores annually.
But presentation made a few days ago says “Annual capex is targeted at ~Rs10000crs”