CIL: CIL may show strong earnings growth, pay higher dividend


ET Intelligence Group: Shares of Coal India are trading at six-times FY22 estimated earnings with a projected 12.9% dividend yield, and it is quite likely that the company can beat the Street consensus for the year.

The stock is trading cheap on increasing concerns over renewable energy replacing coal-fuelled power, but the numbers tell a different story. The demand is likely to sustain at least in the near-to-medium term. And some analysts also argue that solar cannot substitute coal entirely, especially after sunset – when solar power isn’t generated.

For the December quarter, India’s largest coal producer reported a 12.8% year-on-year rise in volume offtake, taking its volume growth for the first nine months of FY22 to 17.6%.

The 482-million-tonnes offtake for the first nine months of FY22 is also 15.4% higher than the first nine months of FY20. If the company closes the year with 15% volume growth, the offtake would be 660 MT, which is much higher than the consensus analyst estimates that range from 610-635 MT. The reason for such an uptick is low stock at power plants and high power demand, which has not only led to a rise in volumes, but also in prices.

International coal prices more than tripled in the one year to October 2021 when they peaked on strong demand from China, which cut its domestic output and imported 76% more coal in September 2021 as compared to the previous year. However, international coal prices have corrected since then to almost half but continue to remain elevated.

CIL may Show Strong Earnings Growth, Pay Higher Dividend

To meet the domestic requirements, Indonesia, the world’s largest coal producer and exporter, imposed a ban on exports in January. All this indicates that the coal prices will continue to stay firm. The government has also asked power producers to arrange imported coal to avoid shortages during the summer season.

Coal India has not taken any meaningful price increase for the past three years and the hikes are expected soon, keeping in mind the rising costs.

Last year, the company introduced various charges such as loading and evacuation charges. It will also realise a higher price for the coal sold through e-auction, which is outside the fuel supply agreement.

Analysts expect the company to deliver a 25% earnings growth in FY22 and 17% in FY23.

The company has already paid ₹9 per share as interim dividend – more than 90% of its earnings in the first half. With higher earnings in the third and fourth quarters, the final dividend could be even higher.

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