Buy Coal India; target of Rs 380: Motilal Oswal

Motilal Oswal is bullish on Coal India recommended buy rating on the stock with a target price of Rs 380 in its research report datedd November 21, 2023.

November 24, 2023 / 12:28 IST

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Motilal Oswal's research report on Coal India

In a recent investor interaction, Coal India Management highlighted the following points: a) comfortably on track to achieve a production target of 780mt in FY24 b) demand continues to be robust and all the volumes mined would be consumed c) e-auction premiums maintaining stability at 85-90% levels d) committed to the goal of reaching 1b mt of production within the next three years. COAL has long-term commitment from numerous power plant companies via FSA agreements, providing better visibility. Based on the YTD performance, COAL is confident of achieving 780mt of production during FY24. Domestic power generation is expected to grow 7.2% to 1,750bu in FY24, consequently driving the demand for coal. Dispatches to coal-fired plants till Oct’23 stood at 346mt (up 15mt YoY) and is expected to dispatch ~610mt in FY24E. E-auction premiums which had cooled off in Jul’23 witnessed an improvement in Aug-Oct’23. E-auction premium in 2QFY24 stood at 83%, above its historical average and is expected to be around 85-90% for FY24E.

Outlook

COAL trades at EV/EBITDA of 4.3x FY25E. We reiterate our BUY rating on the stock with a target price of INR380 (5x EV/EBITDA). We believe COAL is well placed to capitalize on the growth opportunity ahead. Any hike in FSA prices post-election will further add to the financial performance of the company.

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