5.35% Yield, 52.5% Dividend: Maharatna PSU Is Goldmine In Coal, ICICI Direct Says BUY, For Highest Rs 550 TP

Maharatna PSU, Coal India is a goldmine in coal sector, with brokerages recommending its share price as BUY, owing to healthy volume growth and superlative return ratios. There is potential of over 21% upside in Coal India, and its upcoming dividend recommendation along with Q4 earnings will be key sentiment triggers.

Coal India Share Price:

On BSE, CIL shares stood at Rs 453.10 apiece, with a market cap of Rs 2,79,233.22 crore. The stock is nearing its 52-week high of Rs 487.75 apiece, while it has more than doubled from its 52-week low of Rs 223.30 apiece.

YTD, CIL shares are up by 19% on BSE. In a year, the upside is over 95%.

Coal India Dividend, Q4:

In its regulatory filing, CIL said that the meeting of the Board of Directors of the company will be held on Thursday, the 2nd May'2024 inter-alia to consider, approve and take on record the Audited Financial Results of the Company (Standalone & Consolidated) for the 4th quarter and year ended 31st Mar 2024 after the results are reviewed by the Audit Committee of the Board.

Also, the PSU announced it is looking to recommend a final dividend for FY24, if any.

For FY24, so far, CIL has paid its first interim dividend of Rs 152.5% valuing to Rs 15.25 apiece in 2023, while it paid recently paid its second interim dividend of 52.5% to Rs 5.25 apiece after turning ex-dividend in February 2024. In FY23, the company paid dividends of up to 242.50% amounting to Rs 24.25 apiece.

On the current market price, CIL has a dividend yield of 5.35%.

Also, on April 16, CIL announced that its capital expenditure as a whole has risen by 6.5% on year to Rs 19,840 Crores ending FY 2024, the highest to date. Comparatively, the capex was Rs. 18,619 Crores in the preceding fiscal year. CIL achieved 120% target satisfaction over the year's capex target of Rs. 16,500 Crores. For the fourth fiscal on sequence CIL's capex breached the budgeted target.

With the company focusing on strengthening coal transportation and handling infrastructure in its mining areas, capex under this head was highest among others at Rs.6,070 Crores, 30.6% of the year's capex spend.

CIL is aiming to have adequate infra in place to evacuate increased quantities of coal produced in future.

Coal India Share Price Outlook:

Motilal Oswal at the latest have recommended to buy for a target price of Rs 520 apiece. ICICI Direct has set the highest target of Rs 550, hinting over 21% potential in CIL from current levels.

In its research report, ICICI Direct said, "We have a positive view on Coal India amidst healthy volume growth on
anvil, superlative return ratios (RoCEs at ~40%), healthy net cash positive b/s and its leading contribution to India's energy needs."

It added, "We assign BUY rating to Coal India with a target price of ₹550 wherein we have valued it at 5x EV/EBITDA on FY26E. A high dividend yield of ~6% is added positive."

ICICI Direct highlighted the investment rationale for its long-term target on CIP. They are:

1. Coal share in India's energy basket remains significant:

Coal accounts for ~50% of India's energy and ~70% of electricity needs, making it the primary energy source for the country. Despite increasing focus on renewable/nonfossil fuel-based energy, there is anticipated growth in coal-based thermal capacity to meet rising energy needs domestically. Thus, demand for coal is expected to reach ~1.3 to 1.5 billion tonnes by 2030 positioning Coal India as a clear beneficiary. Moreover, India imported ~180 MT of non-coking coal as of FY23, providing immediate opportunity for Coal India, medium-term trigger.

2. Volume-led growth to continue:

CIL achieved its highest production volume of 774 MT in FY24 driven by robust demand from the power sector. With the government aiming for a 24x7 power supply for all by 2025, CIL has set an ambitious target of achieving a production volume of 1000 MT by FY26E. We have forecast coal production at CIL to grow at a CAGR of 11% over FY23-26E to 950 MT by FY26E.

Key enablers for double-digit volume growth are: (i) better evacuation infrastructure in terms of First Mile Connectivity projects (ii) Engaging with 15 Mine Developer Operators (MDO) for a targeted capacity of ~170 MT and (iii) revival of Underground Mines wherein it has identified 30 discontinued mines with reserve of ~600 MT.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.