Coal news and updates

It has happened before and it’s happening again. Coal India Ltd (CIL) missed its production and offtake (sales volume) targets for February. It achieved 94% of its production and offtake targets last month. From April till February, CIL has achieved 95% and 96% of its production and offtake guidance, respectively. Investors, however, must be pretty much used to the company missing its targets by now so this should not come as a surprise.

With this, CIL’s full year targets have become far-fetched, to say the least. For fiscal year 2014 (FY14), the company’s official production and offtake guidance stand at 482 million tonnes (mt) and 492 mt, respectively. Achieving this would imply production and offtake of 73 mt and 65.5 mt in March. That means in order to meet its production and offtake targets, growth in March will have to be as high as 35% and 43%, respectively, on a year-on-year basis. Clearly, that’s a very tall order.

Of course, CIL has already given broad hints it may fall short of its targets this year. Reports say that the company maintains that it may miss production by 8-10 mt in FY14. The bad news is that analysts expect the performance to be worse than that. “Post year-to-date miss of 20/18 mt in production/dispatch, we see an operating miss in FY14. We are already factoring production/offtake miss of 16/14 mt, respectively in FY14,” wrote analysts from JM Financial Institutional Securities on 3 March.

Currently, the CIL stock trades at around nine times its estimated earnings for the next fiscal year. There’s little doubt that valuations are attractive. The problem is there are hardly any triggers. There are concerns on earnings growth for FY15 on the back of expected sluggish volume growth and muted price realization. The firm’s track record on meeting guidance is also discouraging. Moreover, CIL’s inability to pass on rising costs to consumers is a matter of concern. Simply put, in the short run, shareholders may not find a diamond in this coal mine.

 

Source: http://www.livemint.com/