After Ex-Dividend For Rs 15.25/Share Dividends, 2 Brokerages Give Buy On Coal India For Rs 380-385 TP

Two brokerages have recommended buying in Coal India after its investors met where the company's management highlighted their growth trajectory. Coal India is on track to achieve its production target of 780mt in FY24, while it is committed to achieving 1b mt of production within the next three years. These brokerages are Motilal Oswal and Elara Securities. They have suggested buying with a target price ranging from Rs 380 to Rs 385. This would mean over 16% potential upside in Coal India shares from the current price level.

At the time of writing, Coal India's share price currently traded near its day's high to Rs 332.70 apiece, up by 0.20% on BSE. Currently, m-cap is nearly Rs 2.05 lakh crore. Its intraday high is at Rs 333.50 apiece.

Coal India is the largest government-backed coal producer in the world. Not just that Coal India is also the highest dividend yield stock in the PSU basket.

Earlier this week, Coal India shares turned ex-dividend on November 21 for the first interim dividend payout of Rs 15.25 per share or 152.5% for the fiscal FY24. In the financial year 2022-23, the company paid a total dividend of 242.50 aggregating to Rs 24.25 per share.

On the current price level, Coal India has a dividend yield of 7.29%, which is the highest among PSU stocks paying high dividends.

In its research note dated November 21, brokerage Motilal Oswal said, "In a recent investor interaction, Coal India Management highlighted the following points: a) comfortably on track to achieve a production target of 780mt in FY24 b) demand continues to be robust and all the volumes mined would be consumed c) e-auction premiums maintaining stability at 85-90% levels d) committed to the goal of reaching 1b mt of production within the next three years."

Further, the brokerage pointed out that COAL has long-term commitments from numerous power plant companies via FSA agreements, providing better visibility. Based on the YTD performance, COAL is confident of achieving 780mt of production during FY24.

Also, domestic power generation is expected to grow 7.2% to 1,750bu in FY24, consequently driving the demand for coal. Dispatches to coal-fired plants till Oct'23 stood at 346mt (up 15mt YoY) and is expected to dispatch ~610mt in FY24E. While e-auction premiums which had cooled off in Jul'23 witnessed an improvement in Aug-Oct'23. E-auction premium in 2QFY24 stood at 83%, above its historical average and is expected to be around 85-90% for FY24E, as per Motilal's note.

On the valuation, Motilal's note said, "Power demand usually reaches its peak in May due to summer heat waves; however, comparatively drier monsoons and high economic activity kept the demand elevated in 2Q, and the demand is expected to remain elevated till mid CY25." It added, "India is lagging behind in its FY30 RE target and Ministry of Power has set FY24 electricity generation target at 1,750bu (growth of 7.2% YoY) of which, the share of thermal power is expected to be over 75%. This augurs well for COAL to achieve strong coal production in the next few years."

"We maintain our e-auction premium estimate for FY24E at ~85%. COAL trades at EV/EBITDA of 4.3x FY25E. We reiterate our BUY rating on the stock with a target price of INR380 (5x EV/EBITDA). Any hike in FSA prices post-election will further add to the financial performance of the company," Motilal's note said.

Meanwhile, Elara Capital in its research note dated November 22 said, "We introduce FY26E earnings and raise our TP to INR 385 from INR 299 based on 4.5x FY26E EV/EBITDA. We remain positive on COAL given solid volume delivery in the past few quarters and the expected annual dividend pay-out of INR 20-23/share, implying a 7% yield. Momentum in e-auction realization is the key risk. We revise COAL to Accumulate from Buy as it has rallied 45% from the August 2023 level."

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.