Coal India Ltd:-Buy/sell:multibagger

Scripscan:Coal India Ltd



Story:PSU Coal India posted a good set of numbers for Q1FY12. Despite just a 27% rise in net sale, and a 15% rise in total operating expenses, the company ended the quarter with a 64% rise in net profit at Rs.4144 crore. Also its coal production during the quarter was at 96.3 mt, which was slightly lower than the company’s target of 98.66 mt. OPM was at 41.07% up by 841 bps on a YoY. What really helped was higher realisations. This could also be attributed to the fact that it sold 11.39 mt of coal through electronic auctions, 2.09 mt more than during Q1FY11.The company has set itself a sales target for this fiscal year at 454 mt, which is 8.5% higher than FY11. One of the biggest costs for the company is on employees. In Q1FY12, its spent 8% higher at Rs.4872 crore. And in Q2FY12, this cost is expected to go up further as the company is negotiating wage revisions. The company plans to provide for the potential increase in wage costs from Q2 and hence profit growth in the quarter till September is expected to be lower. Coal India has cleared a proposal to spend up to Rs.4,200 crore to build 21-22 washeries, over and above the 20 already in the pipeline at a cost of Rs.2,800 crore. This is to be fully commissioned in eight years after which it will wash almost 50% of its coal, which in turn will fetch it a higher price.Hold this scrip for the next decade to reap real rich monetary benefit.

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