Additional inputs from Live Mint: It’s worth noting that CIL declared an interim dividend for FY16 worth Rs.27.40 per share recently.
Nevertheless, what offers some hope is that demand from the power sector could improve as we enter the summer season. That in turn is likely to boost coal demand. “Central Electricity Authority data indicates 13-15GW (gigawatts) of annual power capacity addition based on domestic coal in FY17-19 period, which alone can drive 9-10% coal demand growth,” points out JM Financial Institutional Securities Ltd.
And then, about 50% of current coal imports is to offset the shortfall in domestic production, added the brokerage firm. “Barring seasonal anomalies we believe coal demand will keep growing structurally,” JM Financial said in a report. Needless to say, if that pans out, CIL will benefit.
Currently, one CIL share trades at about 11 times estimated earnings for FY17. While valuations seem to be factoring in most of the negatives, what are the triggers?
With dividend now behind us and a forthcoming wage hike in July, focus would shift to FSA (fuel supply agreement) volumes price hikes, said Bhaskar Basu of Jefferies India Pvt. Ltd. “While there is uncertainty around price hikes, we believe market is already factoring in no price hikes,” points out a Jefferies report on 3 April.
Accordingly, potential price hikes and news flow surrounding that will act as a trigger from a near-term perspective.
Having said that, slower-than-expected volume growth and lack of price hikes will pose downside risks to earnings estimates.