5.87% Yield, 52.5% Dividend: Maharatna Coal India Recommended To Buy, Target Price At Rs 508

With the latest correction in the market, there is an opportunity to fetch double-digit gains in Maharatna giant, Coal India. The largest Indian coal producer has strong product growth, and brokerage Antique Stock Broking is optimistic about the company going ahead. The brokerage has set a target price of Rs 508 on CIL, which signals over 20% potential upside ahead.

Coal India Share Price:

On March 13th, Coal India's share price stood at Rs 416.90 apiece, down by 7.5% on BSE with a market cap of Rs 2,56,924.14 crore.

YTD, CIL's share is up by 9.44% on BSE.

Coal India's Latest Deal:

Rajasthan Rajya Vidyut Utpadan Nigam Limited (RRVUNL), a State Government Undertaking under the Energy Department, Government of Rajasthan RRVUNL and CIL have executed a Memorandum of Understanding (MoU) on 10th March 2024, at Jaipur, Rajasthan for exploring various opportunities for securing power to meet the growing energy demand of the state of Rajasthan.

In this MoU, the focus will be to explore the possibilities of setting up 4100 MW projects through a JV Company to be constituted between RRVUNL and CIL, across the 5 (five) identified Projects viz. Pit-head Thermal Power Projects, Solar Projects at Solar Parks, Pumped Storage Projects, Solar Projects at Existing TPPs and Wind Projects.

Coal India Production:

From the April to February period of FY24, the company's coal production stood at 619.7 Mille Te, registering a growth of 10.5% from the same period a year ago. Offtake climbed by 8.6% YoY to 630.5 Mille Te.

In February 2024 alone, CIL's production rose by 8.7% to 74.8 Mill Te, and offtake jumped by 12% to 65.3 Mill Te on a year-on-year basis.

Coal India Dividend:

The large company has delivered 26 dividends since February 2011, as per the Trendlyne data. In the past 12 months, the company paid up to Rs 24.50 per share dividend. In 2024, the company paid dividends of 52.5% aggregating to Rs 5.25 apiece.

Coal India has a dividend yield of 5.8% on the current market price.

Coal India Share Target Price:

In its research note, Antique Stock Broking said, "Coal India (COAL) produced 75 MT in February-24, up 9% YoY and offtake was at 65 MT, up 12% YoY. To summarize, 11MFY24 production was 685 MT, up 11% YoY. Similarly, offtake during the same period was 685 MT, up 9% YoY. We believe COAL can achieve 765 MT in production/ offtake, which is up 62 MT (or up 9% YoY) over FY23, falling marginally shy of its initial target of 780 MT. Should offtake grow by 8% CAGR, COAL offtake volumes will be ~825 MT in FY25E and ~870 MT in FY26E."

Further, Antique explained that on February 24, COAL commissioned the Dipka Open Cast Project coal handling plant, which can add coal handling capacity by 25 mtpa. Similarly, COAL has commissioned Chal OCP coal handling plant, which can add 6 mtpa in FY25E. Further, Coal has commissioned the Baroud OCP coal handling plant, which can add 10 mtpa in FY25E. Collectively, all three additions can increase SECL's production and offtake by 41 MT in FY25E.

Also, the brokerage believes NCL is expected to sell a volume of 136 MT in FY24E. However, in the month of February 24, NCL commissioned Jayant OCP CHP-SILO and the Dudhichua OCP CHP-SILO projects. The Jayant OCP CHP-SILO can increase the offtake by 15 mtpa, while the Dudhichua OCP CHPSILO can increase the offtake by 10 mtpa.

On CIL pursuing 61 FMC projects, Antique's note added, "All projects put together can evacuate 763.5 mtpa once fully operational by FY29. Note, COAL will be investing about INR 247 bn on FMC projects spread over till FY29, where some investments are already done. Further, COAL has identified 24 rail connectivity projects at an investment of about INR 40 bn to dovetail it with its FMC projects. To add, COAL is also setting up 21 railway sidings at a capex of INR 35 bn to be completed by FY26."

Accordingly, the brokerage added, "We understand e-auction premiums have narrowed to 45% as against 115% in 3Q. With 3QFY24 EBITDA/ton as high as INR 594/ton, the unit numbers are headed for disappointment. However, should the e-auction premium remain at 50% levels, FY26E EBITDA can be INR 380 bn as against INR 368 bn in FY23. We assume FSA coal, 80% of volume, can generate an EBITDA of INR 300/ton and e-auction can generate an EBITDA of INR 1,000/ton."

Hence, on valuation, the brokerage said, "COAL estimates a capex of INR 800 bn over the next five years while planning to achieve its 1 btpa+ target. Even then, on a conservative volume/ pricing estimate, we expect the company to clock 15%/ 16% CAGR in revenue/ EBITDA by FY22-26E (our base year is FY22 as FY23 was a windfall year for coal producers). Using DCF, we value COAL at INR 508/share and retain BUY recommendation."

The latest current price implies potential 20.4% upside in Coal India ahead.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor 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.