Buy Coal India; target of Rs 560: Sharekhan

Sharekhan's research report on Coal India

Company reported a Revenue of Rs. 30,673 crore (down 6.4% y-o-y). Volume offtake decreased 3.5%% y-o-y while the blended realizations fell 5.8% y-o-y. Both the segments, FSA and e-auction witnessed a volume and pricing decline. Adj. operating profit of Rs. 7,154 crore was down 19.6% y-o-y. Margins of 23.3% declined 381 bps y-o-y and they were impacted by higher other expenses. Consequently, consolidated PAT of Rs. 6,289 crore was down 22% y-o-y and 23% below of our estimates. CIL has strong growth levers – 1) The strong volume growth outlook and resulting operating leverage and 2) potential hike in FSA coal realizations. The coal volumes are expected to improve at around 8% CAGR for the next few years given the strong outlook for the power sector.

Outlook

Valuation of 7x/6.7x its FY26/FY27 EPS estimates is attractive, and the stock offers a high dividend yield of ~5-6%. Hence, we maintain a Buy with a revised PT of Rs. 560 (cut in estimate and TP because of the soft quarter). Potential stake sale in Bharat Coking Coal Limited (BCCL) and subsequent listing would unlock value.