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Coal India Case Study: Products, Subsidiaries, Financials, KPIs, and SWOT Analysis

Coal India Ltd. was founded in 1975 and became one of the world’s largest coal producers. The company currently operates in eight Indian states, 138 underground, 171 opencast, and 13 mixed mines. Today’s blog will explain CIL’s market data, financial data, balance sheet, and SWOT Analysis.

Coal India Overview

Coal India Ltd. operates under the ownership of the Ministry of Coal (MOC), Government of India, and is headquartered in Kolkata, West Bengal, India. It is one of the largest government single coal producers across the world.

Company Type	Public Sector Undertaking
Area served	India
Headquarters	Kolkata, West Bengal, India
Industry Type	Production and Mining

Awards and Recognitions

2013 – Corporate Social Responsibility Awards
2012 – Top 250 Global Energy Company Rankings
2012 – Ranked 9th on the Fortune India 500 list.
2020 – Best Strategic Performance Award
2019 – Rural Development Award

Coal India Products Offered

The products and services offered by the CIL are:

Coking Coal:

This high-quality coal is used in coking, steel, energy, and carbon manufacturing. CIL ensures quality coal for daily and industrial purposes.

Non-Coking coal:

This quality of coal is not ideal for coking but can generate electricity for other industrial purposes.

Tar:

It is used for boilers of industrial plants, pharmaceutical industries, powerhouses, oil, dye, making roads, etc.

Coal India Subsidiaries

Some of the company’s subsidiaries are:

Bharat Coking Coal Limited (BCCL)

This company is situated in Dhanbad, Jharkhand. It is mainly engaged in the processing and extraction of coking and non-coking coal.

Central Coalfields Limited (CCL)

Situated in Ranchi, Jharkhand, the company offers coking and non-coking coal mining and distribution. CCL intends to grow and provide energy to the entire area.

Western Coalfields Limited (WCL)

It is situated in Nagpur, Maharashtra. The company has expansive coal mining and processing activities across Maharashtra and Madhya Pradesh. WCL plays an important role in ensuring the fulfillment of the energy demands of these states, increasing industrial growth and developmental projects.

Eastern Coalfields Limited (ECL)

Situated in West Bengal, the company specializes in the extraction of non-coking coal. ECL supplies essential non-coking coal to various industries and power plants in these regions, enhancing the infrastructure and economic stability.

South Eastern Coalfields Limited (SECL)

This coalfield is established in Bilaspur, Chhattisgarh. The company emerges as the largest coal-producing subsidiary. SECL plays a critical role in driving economic growth by offering coal supplies across diverse sectors.

Mahanadi Coalfields Limited (MCL)

Situated in Sambalpur, Odisha, MCL is engaged in providing non-coking coal production. The company contributes substantially to meet both the state’s and the nation’s robust energy demands, energy reliability, and economic advancement.

Northern Coalfields Limited (NCL)

It is in Singrauli, Madhya Pradesh. The NCL holds a crucial position in India’s coal production landscape. The company effectively meets the growing coal needs of the region, highlighting its commitment to enhancing regional energy security and enhancing economic progress.

Coal India Market Data

Market Cap	₹ 280,773 Cr.
TTM P/E	9.56
ROCE	71.56 %
Book Value	₹ 92.89
ROE	56.03 %
52 Week High / Low	₹ 488 / 221
Dividend Yield	5.32 %
Face Value	₹ 10.0

(Data as of 12th April 2024)

Coal India Financial Highlights

Income Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Operating Revenue	1,38,506.22	1,09,941.45	90,233.00	96,282.75
Total Income	1,45,111.75	1,13,843.38	94,221.77	1,02,728.90
Total Expenditure	1,01,743.22	85,248.35	71,849.47	74,702.66
Profit before Tax	38,000.81	23,616.28	18,009.24	24,071.32
Consolidated Profit	28,165.19	17,358.10	12,699.89	16,714.19

(All values are in crores)

The table shows significant growth in topline figures, which in turn resulted in a massive profit jump. This jump was made possible by minimising expenses during periods of good topline growth.

Balance Sheet

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Non-Current Liabilities	80,279.44	75,083.92	70,168.14	65,090.18
Current Liabilities	68,734.64	57,208.51	50,586.90	49,068.29
Non-Current Assets	98,946.95	83,263.27	72,960.16	63,021.92
Current Assets	1,08,082.70	92,845.99	84,753.32	83,687.55

(All values are in crores)

The graph above shows a healthy state of business. The current assets and noncurrent assets were funded primarily by their respective group only.

Cash Flow Statement

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
Cash From Operating Activities	35,686.21	41,106.77	10,592.42	4,977.24
Cash Flow from Investing Activities	-23,422.99	-25,714.51	181.90	1,032.84
Cash from Financing Activities	-13,661.14	-13,441.24	-8,453.14	-4,790.87
Net Cash Inflow / Outflow	-1,397.92	1,951.02	2,321.18	1,219.21

(All values are in crores)

For the past few years, the investing activities have seen cash outflows, indicating the company’s strong focus on investing heavily to generate income in the long term. The operating activities also showcase consistent growth.

Profitability Ratios

Particulars	Mar-23	Mar-22	Mar-21	Mar-20
ROCE (%)	71.76	54.38	46.06	73.08
ROE (%)	56.03	43.63	36.99	56.99
ROA (%)	14.68	10.41	8.35	12.13
EBIT Margin (%)	23.17	18.43	16.25	18.83
Net Margin (%)	19.38	15.27	13.48	16.26

Coal India SWOT Analysis

Strengths

Coal India Ltd. enjoys large-scale operations that affect the country’s economic growth.
Coal India Ltd. recorded the highest-ever production and offtake in FY 2023 at 703 million tonnes and 695 million tonnes.
The company maintains its monopoly in the market.

Weaknesses

Coal India Ltd. comes under the operations of the Ministry of Coal. Hence, it is bound to sell coal at a lower rate to power plants.
It is argued that the company’s operations have led to soil erosion, pollution, land degradation, and many other environmental problems.

Opportunities

The company has plans to enhance the infrastructure of rail, solar, and thermal powerhouses.
The company is creating opportunities to diversify into India’s energy sector.

Threats

Rising coal production can lead to degradation, soil erosion, and other environmental concerns.
Any changes in the sociopolitical factor can impact the company’s operations.

Conclusion

Coal is a prominent indigenous energy source in the country. The company is one of the leading coal producers and also contributes heavily to the energy sector. The management expects the demand for steel and power to increase, thus leading to enhanced growth.

Although the business has a proven history of generating value for its customers while maintaining significant margins, it is still recommended that you perform your research before investing.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Nestle India Case Study: Business Model, Financial Statement, SWOT Analysis
2	Dr. Reddy’s Laboratories Case Study: Business Model, Financials, KPIs, and SWOT Analysis
3	Larsen & Toubro Ltd Case Study: Business Model, Financials, KPIs, and SWOT Analysis
4	Mahindra & Mahindra Case Study: Products, Financials, KPIs, and SWOT Analysis
5	Ullu Digital Case Study: Business Model, Financials, and SWOT Analysis

Frequently Asked Questions (FAQs)

What is Coal India Ltd’s primary business?
It is an Indian-Based mining company that operates through its subsidiaries in 83 mining areas spread over eight states across India.
What are the risks faced by Coal India?
The company faces environmental and political risks due to its nature of business and affiliation with the central government.
What is the market cap of CIL (Coal India Ltd.)?
As of 12th April 2024, the market capitalization is ₹ 280,773 Cr.
Where is the headquarters of CIL (Coal India Ltd.)?
The headquarters of CIL is situated in Kolkata, West Bengal, India.

April 15, 2024

Are Indian Stock Markets Overvalued?

“The market is overvalued; can I sell my portfolio holdings and then buy later at a lower price?” – This is the most popular question among investors whenever the market reaches an all-time high. Well, there is no straightforward answer to this question as we cannot time the market.

India’s booming stock market has been a source of celebration for many investors since it has been on a bull run in recent years, reaching all-time highs. But this surge has led to a critical question of overvaluation.

In this blog, we will explore the key valuation metrics, and factors responsible for the bull run and try to conclude as to whether the market is overvalued.

Why The Rally?

The Indian stock market has been undergoing a strong bull trend, with indices such as the SENSEX and NIFTY hitting new highs. Not only the SENSEX and NIFTY, but practically all indexes have surged in the last year, with PSUs and Infrastructure stocks leading the way. Even the BSE MIDCAP and BSE SMALLCAP have given nearly 70% returns in the past year.

This surge can be attributed to a confluence of positive economic and market-driven factors:

India’s GDP growth remains positive, with expectations of moderate growth even in the latter half of the fiscal year. This economic strength translates to confidence in the overall business environment.
Inflation seems to be under control, offering some relief after a period of rising prices. This stability fosters a more predictable economic climate for businesses and investors.
Many companies have delivered positive results in recent quarters, which either meet or exceed market expectations. This showcases the healthy corporate performance and investor sentiments.
The US Federal’s Reserve dovish stance, with no further interest rate hikes anticipated, has eased global liquidity concerns. This will benefit emerging markets like India.
FPIs have returned to the Indian markets after a mid-November calm. This renewed interest provides a fresh wave of liquidity and boosts market optimism.

Are Markets Overvalued?

Now, the key question is whether our markets are overvalued. Let’s break it down in simpler terms. To assess whether the Indian stock market is overvalued, we need to analyse key valuation ratios. Below is a breakdown of some key metrics:

1. P/E Ratio (Price-to-Earnings Ratio)

This ratio compares a security’s current market price to its earnings per share. A high P/E ratio can indicate overvaluation, particularly if it is significantly higher than the historical averages.

2. Market Capitalisation to GDP Ratio

This compares the total market value of all listed companies to the country’s gross domestic product (GDP). A higher ratio could indicate that the market value of listed companies has grown faster and is not in sync with the overall economy of the country.

3. Index Earning Yield & 10-year G-Sec Yield

Index Earning Yield is the average earnings yield of the companies within the Index like NIFTY 50 or Sensex 30. Earnings yield is calculated as the inverse of the P/E ratio. A higher yield indicates that stocks are relatively cheaper compared to their earnings potential or vice-versa.

The 10-year G-sec yield is the annual interest rate the government pays on a 10-year government bond. It reflects the risk-free rate of return as sovereign bonds are considered the safest instrument.

Combining the above two forms the BEER Ratio, also known as the Bonds Equity Earnings Yield Ratio or Gilt-Equity Yield Ratio (GEYR) and is used to compare the relative attractiveness of stocks and bonds in a particular market. A higher E/P relative to G-Sec yield suggests stocks might be more attractive.

Now let us have a quick analysis of the current and historical valuation of key metrics of market valuation

PE Ratio

As of April 2024, the Nifty 50 P/E Ratio is at around 23. Below 20 is considered a decent number as per market experts. The current PE Ratio is higher than the historical average which suggests slight overvaluation in market. The P/E ratio of Nifty 50 crossed 40 in 2021. Keep in mind that the P/E ratio can be affected by earnings of the companies; the higher the earnings, the lesser the P/E ratio.

Market Capitalisation to GDP Ratio

India’s Market Capitalisation accounted for 124% of its Nominal GDP in Dec 2023, compared with a percentage of 104.8% in the previous year, i.e., 2022. The percentage reached at an all-time high of 146.4% in December 2007 and a record low of 23% in December 2021.

The current number, i.e., 124% is significantly higher than the historical average of around 87% which suggests overvaluation in the Indian markets.

While India’s MCAP/GDP ratio is lower than that of some developed nations, it is considerably higher than its historical average.

BEER Ratio

As discussed above, the BEER ratio can be calculated by dividing the bond yield with earnings yield (E/P).

The current 10-year Bond yield and Earning yield of the Nifty 50 index stand at 7.87% and 4.65%, respectively.

Therefore, BEER Ratio = 7.87 / 4.95 = 1.58.

Additionally, if the BEER Ratio > 1, the scenario suggests that bonds might be a more attractive option compared to stocks, i.e., equity markets are relatively overvalued as compared to the bond markets.

Conclusion

To wrap up, the P/E Ratio of broader indices such as Nifty 50 and Sensex 30 is above the historical average, suggesting some potential overvaluation. The market cap to GDP Ratio is at an all-time high, indicating the market capitalisation has grown faster than the overall economy.

Overall, there are mixed signals about the Indian stock market’s valuation. While some metrics suggest overvaluation, they are not at extreme highs. However, the Indian stock market’s valuation remains a topic of debate. The above findings do not indicate that markets are due for an instant correction. An increase in corporate earnings, GDP growth, political stability, etc. can significantly affect the above-mentioned metrics and overall sentiments of the market. A comprehensive analysis considering various factors is important before drawing a definitive conclusion.

“The markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes.

Frequently Asked Questions (FAQs)

Are Indian stock markets overvalued?
There are mixed signals. P/E ratios are above historical averages, but not at all-time highs. The market cap to GDP ratio is at an all-time high, which could indicate overvaluation.
How can I analyse the valuation of the Indian stock market?
Consider factors like the P/E ratio, market cap/GDP Ratio, sectoral valuations, etc.
What is the full form of the BEER Ratio?
BEER Ratio stands for Bond Equity Earnings Yields Ratio.
Where can I find more information on Indian stock market Indices?
One can check out the official websites of NSE (www.nseindia.com) and BSE (www.bseindia.com) for data of various indices.
Apart from valuation ratios, what other factors can we consider when analysing markets?
Consider looking at sector specific valuations, global market conditions, economic growth prospects, RBI policies, Political Stability, etc.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

April 12, 2024

Explainer on Cigar Butt Investing: Features, Advantages, Limitations, and Suitability Explained

If you saw something valuable on sale, how would you respond? You’ll probably buy that item without wasting any more time. But what if we told you that there’s also a chance to find something similar in the stock market?

You read correctly – today’s blog will introduce a term called “Cigar Butt Investing.”

Cigar Butt Investing Overview

The CEO of Berkshire Hathaway and legendary businessman, Warren Buffett, applied the cigar butt investment approach.

Cigar Butt Investing, or “Trouble asset investment,” works on the theory that “if someone wants to smoke but doesn’t have any money, they can pick up abandoned cigars on the street and have a few free puffs.”

Similarly, when the market drives a stock down to a particular point and it begins selling at a price significantly below book value, investors would invest a portion of their capital in it and wait for it to rise before selling it for a profit.

This type of investing strategy is extremely risky because the stock price will be under pressure for a long period and may correct to a lower level than anticipated.

Did you know?

Warren Buffett is known to have employed this strategy in his early investing days; later, he switched to value-oriented investing.

Cigar Butt Investing Features

1. It is typically compared to the value investing principle, with a primary focus on stressed businesses that are trading at significantly reduced prices.

2. It usually targets businesses that the majority of shareholders have neglected.

3. These investing techniques have no long-term potential; instead, their primary focus is on making short-term profits.

4. Investing in cigar butt companies is limited to individuals who actively manage their portfolios.

5. Those who are willing to assume a high level of risk and receive higher returns might consider investing in this way.

Cigar Butt Investing Historical Success

Here are a few examples of successful cigar butt picks made by the most famous investor of all time, Warren Buffet, to demonstrate the long-standing efficiency of this method.

One of the most well-known investments made by Warren Buffett is “Western Insurance Securities,” a company whose stock traded below its liquidation value and was valued at a discount to book value of about 55%. While the stock was only trading at $3 per share, the company’s earnings were $20 per share. Buffet later added that the company had excellent management.

Creighton’s PLC was Warren Buffett’s other popular choice. In 2013, the company was trading at a P/E ratio of 4.5x, one-third below liquidation value. He bought the stock because the CEO controls a sizable chunk of the company’s equity, and the company’s balance sheet is steady. The company reached the market P/E of 22.25x after 4 years of growth, yielding an overall return of 640% and an annualized return of 65% for the investor.

Cigar Butt Investing Advantages

1. It gives investors a chance to purchase equities for a substantial discount on their real worth.

2. The strategy allows a risk-taking investor to book profits in the short run.

3. The strategy allows investors to be flexible and opportunistic because they can focus on short-term gains and swiftly spot undervalued opportunities without thinking about long-term positions.

4. Investors can profit from inefficient companies by adopting an aggressive or contrarian attitude, particularly when those companies are unfavorable to investors or are undergoing issues of some kind.

Cigar Butt Investing Limitations

1. Cigar butt stocks are frequently cheap for a variety of reasons, including weak fundamentals, unfavorable market circumstances, etc. As a result, even if the market recognizes their full value, stock prices may not rise.

2. In comparison to general equities, stocks that experience significant declines are regarded as volatile and dangerous investment opportunities.

3. It is not always possible for an undervalued stock to return to its normal price because some stocks experience ongoing losses that ultimately lead to a permanent loss of capital.

How to understand if a discarded Stock has a few puffs left?

Benjamin Graham’s criteria to perform the cigar butt approach is to buy stocks that traded at below 2/3 of the company’s net current asset value per share.

To calculate the net current asset value per share, use the following formula:

Net Current Asset Value/Share = (Current Assets – Inventory – Total Liabilities – Preferred Stocks)/Outstanding Shares

After this calculation, you will know what every shareholder would get if the company were liquidated tomorrow. After making all the calculations, if the number is greater than the stock’s current price, then we can say that the company has some puffs left in the Cigar.

Is Cigar Butt Investing Suitable for Investors?

Identifying stocks that are trading below their liquidation value requires a high level of competence, and finding distressed companies requires extensive study on the part of the investor. Additionally, investing in companies that have already demonstrated a correction carries a high risk. It may result in further corrections for a longer period before the stocks return to their initial value. Therefore, it is not advised that a risk-averse individual engages in Cigar Butt investment.

Is Cigar Butt Investing Same as Value Investing?

Cigar Butt investment is often equated with value investing. However, value investing necessitates identifying a company whose financials are sound and has a high growth potential. Finding weaker companies whose business is likely to collapse and are trading at a significant discount is necessary for cigar butt investing.

Read Also: What is Contrarian Investing?

Conclusion

To sum up, we can conclude that although Warren Buffet employed this strategy when he first started investing but he stopped utilizing it later in life and now focuses more on value investing as these kinds of possibilities are hard to come by under the current market conditions.

Although there are many ways to invest in the market, it is advised that you speak with a financial advisor and take your risk tolerance into account before making any decisions.

Frequently Asked Questions (FAQs)

Who popularized Cigar Butt Investing?
Cigar Butt investing was made popular by Warren Buffet as he used this strategy in his early days of investing, but later he chose to opt for value investing.
Is Cigar Butt investing suitable for all investors?
No, Cigar Butt investing is not suitable for investors who have long-term investment horizons and who don’t want to take risks with their capital and prefer less volatile investments.
What is the risk in Cigar Butt Investing?
The price of an undervalued stock may not return to its normal level because some stocks continue to lose money, which ultimately results in a permanent loss.
What kind of investment style is Cigar Butt investing?
Investing in a cigar butt requires active management on the part of the investor, who must choose stocks and allocate their portfolio accordingly.
Is there any alternative to Cigar Butt investing strategies?
Yes, there are various alternative trading strategies available other than Cigar butt investing. You can use strategies like traditional value investing, growth investing, and index investing.

April 12, 2024

Dr. Reddy’s Laboratories Case Study: Business Model, Financials, KPIs, and SWOT Analysis

Dr Reddy’s Laboratories Case Study was established in the pharma and health segment in 1984. The company currently offers a wide range of pharmaceuticals both nationally and internationally. Today’s blog will include details on market data, KPIs, Financials, and SWOT analysis.

Dr. Reddy’s Laboratories Overview

Dr. Reddy’s Laboratories is one of the leading pharmaceutical companies in the country. It offers a wide variety of pharmaceutical products, active ingredients, and more. The company’s purpose is to treat its customers with innovative products at an affordable price point.

Company Type	Public
Founder	Anji Reddy
Industry	Pharmaceuticals
Founded	1984

Acquisitions and Joint Ventures

Acquisition of Betapharm

Betapharm is one of the leading pharmaceutical companies in Germany. The integration of these companies allows access to each other’s markets, helping to reach more patients and creating a great impact on healthcare.

Joint Venture with FUJIFILM Corporation

This alliance works on increasing advanced technologies to diagnose patients at affordable prices and provide access to healthcare to the expansive population.

Awards and Achievements

2021 – CII Industrial Innovation
2022 – Bloomberg Gender-Equality Index
2021 – Indo-American Chamber of Commerce
2023 – India Risk Management Award

Dr. Reddy’s Laboratories Business Model

Products

The company’s primarily deals in pharmaceutical products such as:

Diagnostics
Biologics
Generic drugs
Over-the-counter drugs
Vaccines.

Business Strategy

The company is known to employ multiple strategies in order to maintain and boost market share. Some of these strategies are:

Biosimilar opportunities: Dr. Reddy Lab. is securing bio-similar substances derived from living organisms to create active drug substances.
Investing in R&D: This strategy has led to the next wave of growth and also helps to get the product pipeline ready for the market.
Sustainability: The company is incorporating initiatives to sustain the health of the planet.
Deliver Future growth: The company is heavily invested in its production game and hopes for an increase in volume and product portfolio.

Market Data

Market Cap	₹ 1,02,725 Cr.
Stock P/E	19.6
ROCE	26.7 %
Current Price	₹ 6,158
Book Value	₹ 1,528
ROE	21.6 %
High / Low	₹ 6,506 / 4,383
Dividend Yield	0.65 %
Face Value	₹ 5.00

(As of 29th March)