Recommendation From Mining & Minerals Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

THE BLACK DIAMOND : COAL INDIA LIMITED

HERE IS WHY
☛Monopoly status
☛Good growth prospects
☛Attractive valuation.

Coal India Limited (CIL) is an Indian state-owned coal mining and refining company headquartered in Kolkata, West Bengal. It is the largest coal-producing company in the world and a ‘Maharatna’ public sector undertaking (PSU). The company contributes around 82 per cent to the total coal production in India. It is majority government-owned with the Indian government having a shareholding of around 66 per cent in the company. Given India’s abundant coal reserves and non-availability of other sustainable sources of fuel, coal will continue to play a dominant role in meeting the country’s energy requirement. Around 80 per cent of its supplies go to the power sector. 

India’s fast growing energy needs cannot be met with renewables in the foreseeable future. Hence, India will continue to rely on coal for its energy needs. CIL is the backbone of India’s energy industry with the country being one of the top three largest coal consumers in the world. This monopoly status will continue even in the near future. CIL possesses 48 per cent of India’s proven reserves in its command area and accounts for bulk of domestic coal production.

The company’s liquidity had cash and bank balance of around Rs 29,000 crore as of March 31, 2020. CIL will undertake capital expenditure of Rs 20,000 - 23,000 crore in fiscals 2021 and 2022. This will be towards increasing mining and coal washing capacity and improve rail infrastructure. It will help enhance operational efficiency – considered crucial since the volume was hit in the past due to shortage of adequate rakes for transportation of coal and lack of last-mile connectivity in pitheads. 

For the quarter ended March 2020, the company’s gross sales decreased by 4.14 per cent to Rs 25,597.43 crore in Q4FY20 from Rs 26,704.27 crore in Q4FY19. Total expenditure for Q4FY20 stood at Rs 20,839.38 crore as against Rs 20,344.04 crore in Q4FY19, showing an increase of 2.43 per cent. Of the total expenditures, manufacturing expenses stood at Rs 6433.65 crore in Q4FY20 as against Rs 4086.04 crore in same quarter last year, showing an increase of 57.45 percent. Employees Cost stood at Rs 10576.52 crore in Q4FY20 as against Rs 10703.54 crore in same quarter last year, showing a decrease of 1.19 per cent.Thereby, PBIDT, excluding other income, showed a decrease of 18.35 per cent to Rs 6,728.85 crore in Q4FY20 from Rs 8,240.94 crore in the same quarter last year. PBIDT margin, excluding other income, for Q4FY20 stood at 24.41 per cent as against 28.83 per cent in the same quarter last year. 

PAT for Q4FY20 stood at Rs 4,625.87 crore as against Rs 6,030.23 crore in the same quarter last year, showing a decrease of 23.29 per cent. PAT margin for Q4FY20 stood at 16.78 per cent as against 21.10 per cent in the same quarter last year. ROCE for FY20 stood at 27.50 per cent whereas the RONW for the same period stood at 56.99 per cent. The company is trading at a PE of 4.81x as against a five-year median PE of 14.53 x. The PB ratio is at 2.5x as against a five-year median of 5.24 x. The stock has a dividend yield of around 10.05 per cent. The valuations are favourable and there is good upside potential. By virtue of these factors, we recommend our reader-investors to BUY this stock.