Reviews
In this edition, we have reviewed Coal India Ltd. and GAIL (India). We suggest our reader-investors to HOLD in Coal India Ltd. and GAIL(India)
We had previously recommended Coal India in Volume 35, Issue No. 19, dated August 17 – 30, 2020, under the ‘Low Priced Scrip’ segment. The scrip was then recommended at Rs128.90 on the basis of good upside potential for the company’s growth. Coal India is a coal mining and refining company headquartered in Kolkata, West Bengal. It is one of the largest coal producing companies in the world and a ‘Maharatna’ public sector undertaking. On the consolidated financial front, on quarterly basis, for Q3FY21 the company reported a mere increase of 0.66 per cent in net sales to Rs21,708.27 crore compared to Rs21,566.41 crore posted for Q3FY20.
Operating profit contracted by 8.88 per cent in Q3FY21 to Rs5,813.37 crore from Rs6,380.14 crore reported for Q3FY20. Coal India reported a 21.34 per cent decline in net profit for Q3FY21 to Rs3,083.95 crore from Rs3,920.76 crore gained in Q3FY20. On an annual basis, net sales decreased by 3.79 per cent to Rs89,373.34 crore in FY20 compared to Rs92,896.08 crore in FY19. Operating profit for FY20 came in at Rs28,026.25 crore, contracting by 9.13 per cent compared to Rs30,842.91 crore posted in FY19. The company gained net profit of Rs16,701.51 crore in FY20, which is a decline by 4.38 per cent compared to the net profit of Rs17,466.42 crore posted in FY19.
Post easing of lockdown, the company’s performance has improved on a regular basis but profit concerns and volume disappoint still looms over Coal India. To provide for a better growth prospect for its businesses, Coal India recently approved a venture into the aluminium value chain (mining-refining-smelting) and solar power value chain (ingotwafer-cell-module and generation). Also, the e-auction volumes during Q3FY21 more than doubled YoY to 27 MT. Hence, based on the positive upside potential for Coal India, we recommend HOLD.
We had previously recommended GAIL (India) in Volume 35, Issue No. 6, dated February 17 – March 1, 2020, under the ‘Low Priced Scrip’ segment. The scrip was then recommended at Rs130.30, on the basis of positive developments in the gas industry and improvement in the company’s margins. GAIL (India) is an integrated natural gas company with a presence in transmission, gas processing and downstream petrochemicals. Apart from these businesses, GAIL (India) also has interest in liquefied natural gas (LNG) business and in city gas distribution projects.
Looking at the quarterly consolidated results, its net sales for Q3FY21 decreased by 12.39 per cent to Rs15,680.62 crore from Rs17,898.16 crore in Q3FY20. Operating profit for Q3FY21 expanded by 4.07 per cent to Rs2,463.77 crore compared to Rs2,367.32 crore posted in Q3FY20. GAIL (India) posted 39.56 per cent rise in its net profit to Rs1,416.65 crore for Q3FY21 from Rs1,015.10 crore reported in Q3FY20. Looking at the annual trend, net sales decreased by 4.81 per cent to Rs72,567.70 crore in Q3FY21 from Rs76,234.17 crore in Q3FY20.
The operating profit for Q3FY21 came in at Rs10,571.44 crore which is a decrease by 2.85 per cent compared to the operating profit of Rs10,881.83 crore reported for Q3FY20. The company gained net profit of Rs7,268.04 crore which is a growth of about 25.8 per cent compared to the net profit of Rs5,777.57 crore gained in Q3YF20. Increasing demand in the gas sector is expected to positively benefit the company’s revenues. Value unlocking from monetisation of gas pipeline assets will also aid in supporting strong growth for the company. Looking at the overall scenario, the company is expected to benefit from sustained higher profitability as well as growth in gas transmission volumes. Hence, we recommend HOLD.
(Closing price as of Feb 16, 2021)