Despite Hitting All-Time Low, Brokerages Maintain "Buy" On Coal India

On Tuesday, shares of Coal India slipped nearly 2 percent to hit an all-time low of Rs 118.85 apiece. The stock has witnessed a correction in price after its June quarter earnings results that were released in early September showing a sharp decline in its profit due to the COVID-19 pandemic.

The largest coal mining company in India reported a 55.1 percent year-on-year plunge in consolidated profit for Q1 to Rs 2,077.5 crore. Its consolidated revenue from operations fell 25.9 percent from the same period last year to Rs 18,487 crore.

"The continuing COVID-19 pandemic has impacted the business of the group adversely. The offtake was down mainly due to less demand from power sector as well as closure of industries in the non-regulated sector due to COVID-19, even though the company had an opening stock of 74.63 million tonnes as on April 1, 2020," Coal India had said after its results.

The share price has corrected 13 percent from its previous resistance level, said Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities in a note wherein it has a "buy" call on the stock with a price target of Rs 132.

"In the short-term time frame, the stock is in the oversold zone and daily and weekly patterns indicate high chances of price reversal from current levels. In addition, oversold momentum indicator cycles and double bottom formation on weekly charts suggest that high chances of fresh uptrend wave from current levels cannot be ruled out. It has been taken a strong support near Rs 118.50 level; if it sustains above the same, we can expect a quick pullback rally up to Rs 132," he said.

ICICI Securities has also maintained its "buy" rating on Coal India with a target price of Rs 258 valuing the company "on a DCF basis with peak production of 850mnte from FY29E onwards. Although our volume estimate for FY21E remains at 580mnte, CIL is confident of exceeding it, which we are positive upon if the Sep'20 performance continues till Nov'20."

ICICI Securities highlighted that CIL continues to be the lowest-cost coal producer globally, and with several measures being taken to further rationalise cost and infrastructure development, cost per ton is expected to further decline.

In early September, after Coal India's Q1 results, Emkay Global had placed a "buy" call on the stock with a target of Rs 208 per share. The brokerage expects production and dispatch of the company to pick up after the monsoon.

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