Coal India had set a production target of 600mt for FY18, of which it achieved 95% (567mt). Coal offtake for CIL also achieved only 97% of its FY18 target. This miss in offtake and production was largely due to unavailability of coal rakes. With the issue of poor coal rake availability persisting , it is unlikely that the issue would be resolved in the near term. Thus, offtake from CIL is unlikely to reduce the coal shortage in the near term.
CIL holds a dominant market share in coal mining and produces 84% of the nation’s coal output. Coal production for the month of February 2018 stood at 54.5mn tonnes, which takes the total coal production for 11MFY18 to 495mn tonnes. The production target for FY19 stands at 630mn tonnes. The Working Group on Coal and Lignite has stated that they plan to expand production of CIL to 908mn tonnes by FY20. The government made a ruling in February 2018 to allow private miners to engage in commercial coal mining. This move removes the monopoly enjoyed by CIL and is a long term negative for the company.
We expect the company to report revenue CAGR of 13.3% over FY18-20E aided by a 7.8% CAGR volume in coal production over FY18-20E. EBITDA margins are likely to expand by 557bps over FY18-20E due to the higher levels of production. The stock is currently trading at 6.8x FY20E EV/EBITDA.