As at the close of Friday's trade (November 20), the scrip of Coal India, which is Kolkata-based largest coal producer in the world, settled down by almost 0.5% at Rs. 121.45. The stock is very close to its 52 week low of Rs. 109.55, i.e. trading currently with a gap of just close to 10 percent from its 52-week low.
Also it needs to rally quite a bit to hit its all time high of Rs. 447.1, reached in August 2015, i.e. almost 268 percent.
What is not favouring the stock of Coal India?
As per the BSE India site, the things that are not working for the company which are mainly insights by Marketsmojo.com include:
- ROCE(HY) which is lowest at 48.43%. Here ROCE is the measure of earnings before interest and tax (EBIT) for every rupee of capital employed that includes both debt and equity. In other words, it measures capital efficiency of the firm.
- Cash and cash equivalents are also lowest at just Rs. 17472 crore
- PAT(Q)at Rs. 2948 crore has fallen at -16 percent
Further, the government's divestment drive is also an overhang on the counter as investors in view of the limited upside in the scrip do not invest into it. The retail investment in the stock is less than 2 percent which does not help in better price discovery.
Government policies as well as environmental concerns coupled with focus on renewables are to an extent dampening the sentiment. However, as and when the infrastructure and power sector are brough back to normal, the company would align its to tap the various opportunities, with these 2 sectors being the major bulk coal consumers.
From 90% government ownership in the company at the time of its listing on the exchange, the holding of the centre in the PSU has now come down to just 66.13 percent.
Nonetheless, brokerages are bullish on the counter amid hopes of economic recovery.
Stock Recommendations For Coal India With Price Target By Different Brokerages:
1. Emkay Global:
Concerned over low e-auction premiums, the brokerage firm has maintained a 'Buy' recommendation on the counter but lowered the price target from Rs. 208 earlier to Rs. 180, which implies an upside of 48% from current levels.
"E-auction premium at just 1.8% was below our estimates. However, a sharp jump in Eauction volumes helped mitigate the reduction in premium. In addition, the FSA price gain of 4% qoq and negative OBR helped boost EBITDA. We note that Coal India plans to invest Rs650bn over the next 4-5 years to reach its aspirational goal of 1bn tonne production capacity by FY24. Unless the E-auction premium rises substantially, operational cashflow will not be able to fund the steep capex. Receivables continued to rise as gencos delayed payments", noted Emkay.
2. Motilal Oswal:
The brokerage firm in view of the recovery in demand for power and surplus cash situation has maintained a 'Buy' recommendation on Coal India stock. Further based on its 4x Sep'21 EV/EBITDA, the price target of Rs. 192 per share is given, which is an almost 60 percent gain.
Coal India (COAL) reflects the broad recovery in power demand (albeit aided by the low base of last year for COAL). Off-take rose 9% YoY in 2Q (v/s 22% YoY decline in 1Q). Operationally, though, EBITDA (ex-OBR) declined 20% YoY (27% miss) due to higher contractual expenses amid strong OBR, noted Motilal about the company.
Other brokerages including the likes of Prabhudas Lilladher and Sharekhan have a hold and buy call on the stock with a lower price target of Rs. 132 and Rs. 160, respectively.
Edelweiss also taking cognisance of lower cash accretion has cut its price target for Coal India to Rs 155 from Rs 165.
High Dividend Yield Also Limits Downside In Coal India Scrip
Not to forget, investors can also earn from the dividends announced in respect of the stock which turns out to be good for the scrip. For the FY 2020, the company announced Rs. 12 dividend per share which at the current price of Rs. 121.45 translates into a dividend yield of 9.88%.
And for the Fy 2020-21, on November 6 the company declared a Rs. 7.5 interim dividend for every share of the face value of Rs. 10. For which the record date was November 20, while the dividend payment date is November 27, 2020. And considering the current stock price of Rs. 121.45, dividend yield turns out to be 6 percent, which is good enough in the low interest rate regime.
It is worth mentioning that while the stock has not appreciated much in value, but since listing with a high dividend payout has provided returns of 60 percent or more to its investors. The company during FY12-18 declared a dividend of Rs. 140 per share.