Buy This Stock For A Dividend Yield Of 12% To 13%

It's been a turbulent week for the markets, thanks to the Russian-Ukraine crisis, where no easy solution seems to be at hand. However, investors can buy into some stocks where the fundamentals continue to be sound.

Buy the stock of Coal India for a price target of Rs 190

Broking firm Sharekhan is bullish on the stock of Coal India and has recommended a buy rating on the stock with a price target of Rs 190.

According to the brokerage the management has guided for coal production and offtake volume of 630mt and 670mt, which implies an increase of 6% and 17% y-o-y in FY2022. For FY2023, Coal India is optimistic of further increase in coal production and offtake target to 700mt and 700mmt.

Strong dividend yield on the stock of 12 to 13%

According to Sharekhan, the improving earnings growth outlook (expect a 22% PAT CAGR over FY2021-FY2024E), high RoE of 49%, and dividend yield of 12-13% make the stock's valuation attractive at 4.8x its FY2023E EPS (close to trough levels).

The company is in discussions with all stakeholders to implement FSA price hike and expects the same happen soon as costs are rising.

"Potential efficient capital allocation for non-core investments (aluminium smelting and solar energy projects) could act as key catalysts for the stock. We maintain our Buy recommendation on Coal India with a revised price target of Rs. 190 on the stock.

Coal demand expected to surge

Coal accounts for 55% of India's total commercial energy production. Although its share in India's overall energy mix is expected to fall over the next decade, it would remain a primary energy source and absolute coal offtake is expected to improve given higher demand from sectors such as power and steel. Industry estimates suggest that India's coal demand could reach 1,250-1,500 million tonne by FY2030, assuming 6-8% growth in power demand and despite considering growth in renewable energy capacity to 450 GW by FY20230 (from 123 GW in FY2019).

According to Sharekhan, Coal India aims to set up a 3GW capacity by FY2024 and has won 100MW capacity at Rs. 2.2/kWh in GUVNL Tender and the project is under commissioning.

"Moreover, Coal India is now in the list of companies for PLI Scheme of MNRE (IREDA) and should get benefit of the same," the brokerage has said.

 

Stock markets to remain volatile on evolving Russia-Ukraine tensions

While the stock of Coal India is a good buy according to Sharekhan, the only worry right now is the volatility in the stock markets. "Global markets remained on edge after flare up in geo-political tensions between Russia and Ukraine. On the positive side, the Fed minutes indicated that while the central bank intends to shortly begin raising interest rates, its decisions would be data-dependent.

Equity markets have seen rise in volatility in the last couple of days due to varying news flows coming in from Ukraine border. Nifty has been trading in a broader range of 16,800-17,400 and needs a decisive breakout on either side for clear direction. For now, investors will have to navigate their way through the Ukraine crisis and rate hike environment to stay on course," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.