Target: ₹430

CMP: ₹380.85

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 780 mt in FY24 and 850 mt in FY25.

COAL sells about 10 per cent of its total volume via auction-determined prices and we expect the company to sell about 72mt/76mt/88mt through e-auctions in FY24/FY25/FY26. E-auction premium, which eased in Jul’23 after peaking at 329 per cent in Q2-FY23 (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 per cent over the last few months.

COAL has intensified its focus on capex which will improve its evacuation infrastructure. Capex, which used to hover around ₹6,500-8,500 crore until FY20, tripled in FY23 to ₹18,600 crore. Over the last three years, capex has exceeded budget estimates.

COAL trades at an EV/Adj. EBITDA of 4.2x FY26. We roll forward our estimates to FY26. We reiterate our Buy rating on the stock with a TP of ₹430. We believe COAL is well placed to capitalise on the growth opportunity ahead.

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