Buy This Maharatna PSU Stock For Target Price Of Rs 294, Gave More Than 50% Returns In 1 Year

Disclaimer ICICI Securities published a report on Coal India Ltd, a Maharatna company, recommending buying the stocks of the company for a target price of Rs 284 apiece. Given the brokerage's estimated target price, the stocks of the company could jump 35% in 12 months if stocks of the company are purchased at the current market price. The company reported PAT at Rs 88.3bn was up 178% YoY.

Stock Outlook & Returns

Coal India's stock today closed at Rs 218.60 apiece, after gaining 0.99%. Currently, it is trading Rs 85.85 above its 52-week low level of Rs 132.75 apiece and Rs 8.2 apiece below its 52-week high level of Rs 226.80 apiece, respectively. 

The stocks have given good returns on investment over the year- giving 51.86% returns. In the past 1 week, the shares gained 5.53%. In the past 1 & 3 months, the shares gained 13.06% and 28.7%, respectively. In the past 3, the shares gave a positive return of 5.3% and in the past 5 years a negative return of 7.33%. 

The TTM PE ratio is 7.76, and the P/B ratio is 3.08. The TTM EPS is Rs 28.17. The ROE is 40.23%. The debt to equity ratio is 0.08. The dividend yield is 7.78% and the face value is Rs 10. The market capitalization of the stock is Rs 1,32,745 crore. 

Q1FY23 result - key takeaways

Offtake was up 10.6% YoY at 177.5mnte. Production was 28.9% higher at 160mnte. 

Reported PAT at Rs88.3bn was up 178% YoY, mainly driven by:

1) 10.6% YoY increase in offtake and 26% YoY increase in average realisation at Rs1,829/te.

2) Higher diesel prices and explosive costs resulting in 38.4% YoY increase in contractual expenses.

3) 3.1% decline in employee costs.

4) 46% YoY increase in 'other income' at Rs9.9bn.

FSA / e-auction volumes were +20.6%/-30.7% YoY at 153.8mnte/20.9mnte as focus continued on higher supply to the power sector. FSA realisation at Rs 1,443/te was 3.5% higher YoY while e-auction realisation was up 176.6% YoY at Rs4,340/te. "With international coal prices continuing to be elevated, we expect significant demand from NRS and e-auction premiums to remain high in Q2FY23E as well," the brokerage said. 

Q1FY23 performance indicates a strong FY23E

High demand for domestic coal due to high thermal power PLFs and elevated international coal prices resulted in higher eauction premiums. This makes us believe Coal India will continue to post high growth in the subsequent quarters and clock a much better FY23E in terms of volumes and prices. Company expects e-auction volumes at ~100mnte at high premiums in FY23. Any FSA price hike will boost earnings further. Considering the better-than-expected performance in Q1FY23, we revise our estimates for FY23E and FY24E. We now estimate higher volumes for both FY23E (now 695mnte, earlier 675mnte) and FY24E (now: 725mnte, earlier: 705mnte). We also increase our e-auction realisation estimates for FY23E (now: Rs3,200/te, earlier Rs2,000/te) and FY24E (now Rs 2,250/te, earlier Rs2,050/te), but reduce our estimates for e-auction volumes for FY23E (now: 60mnte, earlier: 90mnte).

Buy for a Target Price of Rs 294

According to the brokerage firm, Coal India has reported another quarter of excellent earnings in Q1FY23. Revenue increased 38.8% YoY to Rs351bn, supported by 10.6% YoY increase in offtake at 177.5mnte and 26% YoY increase in average realisation at Rs1,829/te. EBITDA at Rs122.5bn was 153% higher YoY while the company registered an EBITDA/te of Rs690. Reported PAT was up 178% YoY at Rs88.3bn. FSA/e-auction realisation was Rs1,443/Rs4,340 per tonne.

This strong performance was despite cost pressures and sets a very high bar for the coming quarters. We believe Coal India will continue to perform well as factors which were at play in the past two quarters will continue - high thermal power demand, high international coal prices and subsequent increase in demand for domestic coal, leading to higher e-auction premiums. Maintain BUY with a revised target price of Rs 294 (earlier: Rs258)

The brokerage said, "We maintain our BUY rating on the stock, but increase our DCF-based target price to Rs294 (earlier: Rs258), as we revise our estimates for both FY23E and FY24E. Coal India is currently trading at 5.8x P/E and 2.5x EV/EBITDA on FY24E basis with 35.4% RoE. We expect dividend payout to remain high, leading to 9-10% yield at Current Market Price, despite heavy capex."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.