Coal India falls after analysts turn cautious on coal downgrades

Coal India saw selling pressure on Tuesday as investors turned cautious on analysts’ views on the stock.

The public sector entity was in the news recently after the coal quality watchdog—Coal Controllers Organisation—downgraded its coal grades in 177 mines of the firm.

Post these developments, two major analysts have now given out a subdued view on the stock.

CLSA has maintained a sell call on the stock with a lower target price of Rs 265 against Rs 285.

The research firm believes that the downgrade of coal grade is equivalent to 10-12 percent price drop in most cases. It is possible that a partial impact of the downgrades has already come through.

Assuming half impact of the downgrades are yet to arrive, CLSA cut FY18-19 earnings per share (EPS) by 4-7 percent.

Deutsche Bank, meanwhile, has a hold call on the stock with a target price of Rs 297. While it sees a possible impact of the coal downgrade on its FY18 standalone earnings by 20-25 percent, actual impact may be lower due to possible FSA price hike in this fiscal.

In fact, an over 9 percent hike in FSA could offset adverse impact from the grade decline, it added. The dividend yield of over 7 percent should provide downside support, it added.

The stock saw weak movements over the past one month, falling nearly three percent in the past one month as well as in the past three days.

At 11:34 hrs, Coal India was quoting at Rs 281.50, down Rs 4.30, or 1.50 percent on the BSE. It touched a 52-week low of Rs 281.30.