The Nifty has fallen three per cent in the last few weeks, but, the one share which has bucked the trend is Coal India. The stock is on a roll and has been firm for the last few days. Here is why investors have turned bullish on Coal India (CIL).
Reliance upgrades stock to buy
Reliance Securities has recommended buying the stock with a price target of Rs 301.
"We believe that CIL's current stock price has discounted decline in e-auction coal prices.
Improvement in the policy environment and infrastructure spend coupled with manufacturing activities will aid in reviving the demand environment for the power sector thereby higher coal demand.
We believe that likely improvement in off-take from 2HFY18E onwards and improving e-auction realisations augur well for CIL," the firm has said in its research report. Check stock quote of Coal India here
Boost from the recent power sector reforms
Prime Minister, Narendra Modi recently announced huge power sector reforms worth Rs 16,000 crores. The Saubhagya scheme to ensure Power for All by 2019 would through improved electricity demand push the demand for Coal higher and thus benefit a company like Coal India.
The next few quarters would see profitability improving, even as the downgradation of coal blocks is now behind the company. The stock has now gained a little from Rs 250 to the current levels of near Rs 260 and is showing resilience in a falling market.
Motilal Oswal sets target price of Rs 275
Motilal Oswal too had upgraded the stock last month with a price target of Rs 275. "Concerns about grade slippage and employee wage hikes are largely priced in. Volume growth is accelerating on re-stocking.
GST of 5% (earlier 12%) has provided some headroom for price hikes. There is scope to cut costs by reducing inefficiencies/overheads. Resultantly, we revise the target Enterprise Value/adj. EBITDA multiple from 7.5x earlier to 8x. Target Price is revised to Rs 275. Re-iterate Buy," the firm has said in its report.
A great play on dividend
Coal India is always a great play on dividend and hence the risks for the stock falling a great deal from the current levels is very minimum.
The company may not retain the same dividend as last year. However, if it does, declare a dividend of say around Rs 17 per share, your dividend yield could work to 6.5 per cent per year, which is almost like FD interest rates. Also dividend is tax free upto Rs 10 lakhs per year.
This means the downside risk to the stock is very limited from the current levels.
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