Any cyclical business should be valued by book value. Somehow modern fund managers don’t care about P/B.
6 Likes
More here
An increase of 500 MT annually in 6 years roughly translates to 7% CAGR growth rate for the Coal Industry. Thats not very high! However, if we see in totality with
- Rise in coal prices over time (in line with inflation) will bring more to the bottom line.
- Cost reduction measures could bring in efficiency in profit margins.
- Revenue could start pouring in from diversification projects like coal gasification, power plants etc
- Green Targets - 3GW & 5 GW: The company plans to have 3GW of solar power capacity by FY26 and 5GW by FY29.
- And at CMP, a 6% dividend yield could altogether add to the returns.
With all these, there seems to be a possibility of Coal India giving 7% + 6% = 13% Minimum returns and Max could go 16-18% too. And this is excluding the prospects of re-rating.
Disclosure: Not buy sell recommendations. Invested at high levels.
4 Likes
What are the thoughts on this guys - https://indianexpress.com/article/india/jharkhand-govt-legal-action-coal-dues-centre-9731446/ - Stock price has significantly corrected after the legal proceedings came to light.
2 Likes
This is one of the concerns due to which to some extent stock might have corrected.
Also, as per their latest report they have achieved only 65% of Coal production target for FY25, and there is a possibility of missing out on the earlier target.
This stock will not go up in linear manner and there will be lot of ups and downs. This is based on my experience of holding it since Feb-Apr 2022, hence more caution may be apt even at current P/B of 2.5. I have booked profits at multiple levels during 2023 and 2024 and hence still able to hold with patience.
I may be wrong in my thesis and analysis.
2 Likes
I came across this information:
“The demand for the past dues will, however, be staggered in instalments over 12 years starting from April 2026.”
So, I believe they will add provisioning to accommodate the cost over a long period. The estimated royalties are expected to be 35000-40000 Crore, and this is an impact over a 12-year period.
While Coal India has reserves of more than 75000 Crores, financially nothing will impact its daily course of work. Additionally, there is a statement given by MD as follows:
“We are impacted in two states – Jharkhand and Odisha. In Odisha, there will be a hard hit of Rs 35,000 crore. In Jharkhand, the impact was Rs 350-400 crore, which is not a significant amount,” P M Prasad, chairman and managing director, Coal India, said.
About 75-80 per cent of the coal has been given to big plants with whom Coal India has FSAs. “If I can get 80 per cent reimbursed the impact will be around Rs 6,500-7,000 crore provided I can get it back,” Prasad said, on the sidelines of an interaction organised by the Bharat Chamber of Commerce.
So, Coal India is thinking of passing on the burden to its customers. This would further reduce the impact.
More here.
3 Likes
Shibu Soren is asking for 1.36 Lakh Cr even if 20% of that is payable will be a big impact on Balance sheet.
1 Like