Bullish on Coal India Ltd: Macquarie Capital

In a chat with ET Now, Rakesh Arora, Managing Director and Head of Research, Macquarie Capital Securities, shares his views on CIL.
ET Now: What makes you bullish on Coal India, at the end of the day it is a PSU company?

Rakesh Arora: Yes. We are bullish on Coal India and that emanates from two facts. One, it is not driven by price increase any more. Coal India, in the last 18 months, has taken 20% plus coal price increase, so that is good enough to cover all their cost increases that they have seen and the margins have expanded. Second, our bullish thesis is more driven by volume growth.

After two years of almost no growth, we are expecting Coal India to see around 6% kind of volume growth every year for next two years. Also, it is sitting on a huge inventory of around 70 million tonnes and that it is offering to consumers at 40% premium to base price. So, these are two things which are going to push earnings for Coal India higher than what consensus was building in.

Every 2% volume increase is around 5%-6% increase in profits, so there is a huge leverage which Coal India is sitting on. Given the historical performances, consensus is not very bullish on their volume but there is positive surprise going to be there.