Despite low dividend payout, CIL to have healthy yield of 9%

Despite a lower dividend payout, Coal India (CIL), one of country’s largest PSUs, will maintain a healthy 9 per cent dividend yield, equity research and brokerage house Edewleiss said. It has given a buy rating to CIL with a price target of ₹165. The share price of CIL rose by 5 per cent on Friday to close at ₹141 on the BSE.

“In our view, dividend payout of ₹20 per share, akin to financial year (FY) 2014 to 2017 seems highly unlikely. There might be cash outgo as CIL settles the tax dispute worth ₹80 billion (₹8,000 core) under the ‘Vivaad se Vishwas’ scheme of the government. Inflates its receivables at ₹170 billion (₹17,000 crore) and maintains a capex target of ₹120 billion for FY 2021. We estimate dividend payout of ₹12 per share, below expectation of investors, but still implying a healthy yield of 9 per cent,” Edwleiss said.

Edelweiss said it attended CIL’s management call on business update and got better clarity on the volume ramp up and cash utilisation aspects of the company. The key takeaways included likely dividend payout constrains in the near term, CIL’s gearing up of production ramp-up when demand revives and import substitution remains a strategic imperative.

“In our view recouping lost volumes in first quarter of FY-21 looks challenging. We still find balance sheet sufficiently robust with likely cash generation (post tax) of 140 billion in FY-21. Maintain a ‘BUY’ with target price of ₹165,” Edelweiss said.