Motilal Oswal's research report on Coal India
Focus on volume growth: To meet the increasing demand for coal in the power sector amid the government’s strong push to ensure a reliable 24x7 electricity supply, Coal India (COAL) has made a long-term commitment through FSA agreements. Based on YTD performance, COAL is targeting a production of 780mt in FY24 (MOFSL estimate of 751mt) and 850mt in FY25 (MOFSL estimate 821mt). E-auction to propel performance; inches up in recent months: COAL sells ~10% of its total volume via auction-determined prices and we expect the company to sell ~72mt/76mt/88mt through e-auctions in FY24/FY25/FY26. E-auction premium, which eased in Jul’23 after peaking at 329% in 2QFY23 (in line with softening international coal prices), has rebounded. The revival in demand and rise in international prices have pushed the E-auction premium to a level of 80-100% over the last few months. Robust capex in the last few years: COAL has intensified its focus on capex that will improve its evacuation infrastructure. Capex, which used to hover around INR65-85b until FY20, tripled in FY23 to INR186b. Over the last three years, capex has exceeded budget estimates. COAL has earmarked ~INR165b capex in FY24E, which will help the company develop infrastructure across numerous verticals such as railway corridors, land acquisitions, HEMM procurement, setting up CHPs, etc. COAL has already incurred a capex of ~INR105b during Apr-Nov’23 (up 7.6% YoY); its FY24 yearly capex is expected to surpass the budgeted target.
Outlook
COAL trades at an EV/Adj. EBITDA of 4.2x FY26E. We roll forward our estimates to FY26. We reiterate our BUY rating on the stock with a TP of INR430 (premised on 5x FY26E EV/EBITDA). We believe COAL is well placed to capitalize on the growth opportunity ahead.
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