Buy Coal India; target of Rs 330: Sharekhan

Sharekhan's research report on Coal India

Coal India Limited’s (CIL) production has been robust and the company is on track to achieve its guidance of 780 million tonne (implies 11% y-o-y growth). This would be followed by 850mt/1bt of coal production target by CIL by FY2025E/FY2026E. Coal offtake grew by 8% y-o-y to 306 mt in 5MFY2024 and is likely to register >7% coal offtake growth for FY2024. CIL has levers for sustained strong margin – 1) rising volume from the non-power sector (NPS), which fetches better realisation, 2) benefit of operating leverage, given strong coal offtake outlook, and 3) potential hike in FSA coal realisation. We raise our FY2024/FY2025 earnings estimate by 7% each to factor higher volume, improved volume mix (towards NPS), and better abruption of fixed cost, given the benefit of operating leverage. Any potential FSA coal price hike could result in an earnings surprise for CIL.

Outlook

Valuation of 6.4x its FY2025E EPS (close to the trough level) is attractive, and the stock offers a high dividend yield of 8-9%. Hence, we maintain a Buy rating with a revised PT of Rs. 330. A potential stake sale in Bharat Coking Coal Limited (BCCL) and subsequent listing would unlock value.