CIL’s February 2019 shipments rose 3% y-o-y to 51.5 MT, with production rising 6.5% y-o-y to 58.1 MT. For us, the greatest succour is 4%/17% uptick in MCL’s (major subsidiary) shipments/production volume in February. Local issues at SECL also seem to have eased as its shipments/production rose 2%/6%. On production outpacing shipments for the fourth straight month, we estimate inventory at 35 MT as at February end. We envisage non-regulated end users to benefit from the improved coal availability.

We expect e-auction premium (113% over FSA coal) to progressively dip as a result of: 1) higher coal inventory; and 2) lower imports by China, resulting in imports finding their way to the fast-growing Indian market. However, e-auction revenue is still pegged at `40-50 billion per quarter as volumes are likely to pick up. We perceive the rise in shipments at major subsidiaries as positive as this will aid CIL’s volume going ahead. Though higher inventory could result in e-auction premium eroding from the current level, it will be beneficial for consumers, especially non-regulated ones. At CMP, we find risk reward favourable for CIL. We maintain ‘hold/SP’ with target price of `243 (exit multiple of 9.9x FY21E EPS).

CIL is an India-based holding company. The company is a coal mining firm which is engaged in the production and sale of coal. The company offers products, including coking coal, semi coking coal, coking coal, washed and beneficiated coal, middlings, rejects, coal fines/coke fines, and tar/heavy oil/light oil/soft pitch.