Coal India gets mixed ratings after output dips 12%; PSU stock rises 94% in a year

In the past 12 months, Coal India stock has zoomed 94 percent, nearly doubling investors' capital. In comparison, Nifty rose 28 percent during this period.

Coal India shares are in focus on September 6 after the PSU reported a 12 percent year-on-year drop in output, attributed to prolonged monsoon rains in key coal-producing states such as Odisha, Jharkhand, and West Bengal. Analysts pointed to the erratic monsoon as the main reason for the slowdown in volume growth.

Brokerages have a divided view on the stock, with Motilal Oswal and JM Financial reiterating their 'buy' ratings, while Nuvama maintained its 'sell on rise' recommendation. According to analysts, as India moves toward a $5 trillion economy, its dependency on thermal power plants will rise to ensure 24x7 uninterrupted power supply, which is expected to benefit Coal India.

The company aims to reach a production target of 838 MT in FY25, with e-auction dispatches comprising about 15 percent of total volumes. Supported by strong volume projections, healthy e-auction premiums, and reduced costs, Motilal Oswal maintains a positive outlook on Coal India, keeping it as their top pick in the metals and mining sector.

"We reiterate our BUY rating with a TP of Rs 600/share, valuing the stock at 6x FY26E EV/EBITDA," it said.

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Meanwhile, JM Financial highlighted that global coal prices have dropped significantly due to an oversupply in China, with Indonesian coal consolidating around $92-96/t, and Coal India's e-auction prices stabilizing at Rs 2,300-2,500/t.

With a realistic production target of 838 MT for FY25, the firm remains confident in Coal India's long-term growth, driven by record power demand, increased focus on thermal capacity expansion, and strategic initiatives like MDO. The brokerage maintained a 'buy' rating on Coal India with an unchanged target price of Rs 601.

Nuvama emphasised that the globe is not yet prepared to transition to renewable energy. So for the foreseeable future, coal will continue to be the most popular fuel. Additionally, as a result of the disruption in Russia's natural gas supply, demand has switched to coal.

However, the brokerage emphasized several key risks for Coal India, including a decline in international coal prices, a significant drop in e-auction prices, lower-than-anticipated volume growth, and the potential sale of the Government of India's stake through Offer for Sale (OFS).

Coal India stock ended 1.2 percent lower at Rs 497.20 on the National Stock Exchange (NSE) in the previous session. The stock has gained around 30 percent so far this year, outperforming Nifty's returns of 15 percent. In the past 12 months, the counter has zoomed 94 percent, nearly doubling investors' capital. In comparison, Nifty rose 28 percent during this period.

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