Surges 26.84% In 6 Months, This Maharatna Stock Gets BUY Call By ICICI Securities

Coal India Limited (CIL) is the world's largest coal producer, with a market capitalization of Rs 1,16,229 Cr. The corporation is a 'Maharatna' Public Sector Undertaking (PSU) under the Ministry of Coal Government of India. The company's stock has gained 24.29 percent in a year and 21.41 percent year to date. In the previous six months, the stock returned 26.84 percent, and in the last month, it returned 11.83 percent. The stock today closed with a market price of Rs. 188.55. The domestic firm ICICI sees more upside on the stock and has set a target price of Rs. 234.

Investment rationale for Coal India

The brokerage has noted "Coal India (CIL) management has again acknowledged the immediate necessity of a price hike and is striving to get all stakeholders on board at the earliest. Despite disruptions due to covid and monsoons, 9MFY22 performance has been very good and CIL has already surpassed FY21 despatch and production levels, now targeting 660mnte/700mnte despatch in FY22/FY23. However, cost pressures continue to be severe on several fronts, and are being masked by higher volumes and realisations."

ICICI Securities has claimed "Hence, we believe, price hike is the only sustainable means to counter the cost increases. High demand for domestic coal due to high thermal power PLFs, and elevated international coal prices resulting in high e-auction volumes and premiums, make us believe CIL will better its growth in Q4FY22. CIL's volume and e-auction trajectory - 6.5%/13.6% YoY growth in production/offtake and 103% e-auction premium in Jan'22 - strengthens our view. It announced a second interim dividend of Rs5/sh taking total dividend to Rs14/sh for FY22-TD (81% payout)."

Bur for a target price of Rs 234

As per the brokerage "We maintain our BUY rating, our DCF-based target price of Rs234. The stock is currently trading at 5x P/E and 2.5x EV/EBITDA on FY24E basis with 38.4% RoE. We expect dividend payout to be high, leading to 13% annual dividend yield at current prices, as incremental capex in diversified segments is expected to be funded primarily by debt."

"Weakness in the power sector leading to lower volumes, weakness in international coal prices (impacting the sentiment and making imported coal more competitive vs domestic coal), and natural events impacting volumes," are the key risks of the stock according to ICICI Securities which investors need to be careful of.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.