Buy Coal India; target of Rs 180: Motilal Oswal

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26 Aug, 2025 12:21

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COAL reported another month of strong offtake in dispatches, with volumes at 55.1mt, registering a 37.6% YoY increase in May’21. For the first two months of FY22, COAL’s offtake now remains higher by 38% YoY. Offtake growth in May’21 comes on the back of: a) a 15% rise in coal-based generation (based on initial data from POSOCO), amid a 7% rise in overall Power demand, and b) re-stocking of inventory at Power plants (up 5mt MoM). COAL’s production increased a modest 1.7% YoY to 42.1mt (YTD: 3% YoY). This though is on expected lines, amid the large inventory lying at its mines. While there are uncertainties over demand amid stricter restrictions – and rightly so – power demand in May’21 was also impacted by unseasonal weather conditions. Over the past fortnight, demand has shown signs of an uptick (+10%), with some normalization in demand from the western region. Inventory at Power plants is still low at 29mt (16 days of consumption) and we expect it to provide support to COAL’s offtake.

At 2.8x FY22E EV/EBITDA and 6.4x FY22P/E, along with a dividend yield of 10%, COAL remains attractively valued and implies a PV of just 10 years of its future cash flows. We maintain a Buy on COAL with a TP of INR180/share, based on 3.5x FY22E EV/EBITDA.

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