Upcoming Maharatna Stock Dividend, 5.8% Yield: Cash-Rich Coal India's Share May Hit Rs 500 TP; 3 Reasons Why!

Maharatna stock, Coal India has the highest dividend yield in the PSU segment. And this top dividend stock is set to reward its shareholders soon. The world's largest coal producer, CIL is going to meet later in February for an interim dividend announcement and Q3 results. Ahead of the dividends recommendation, CIL is trading at record highs. CIL's share has the potential of hitting a target price of Rs 500.

Coal India Share Price:

Ahead of the interim dividend announcement, Coal India's share price touched a new 52-week high of Rs 422.80 apiece on February 2nd. After the market hours, the stock ended at Rs 419.55 apiece, up by 3.2% on BSE.

Coal India's market cap is at Rs2,58,557.27 crore.

Coal India Dividend:

The board of directors at Coal India is scheduled to meet on February 12. On this day, the board will consider and declare payment of the 2nd Interim Dividend for FY 2023-24, if any.

As per the regulatory filing, CIL has fixed Tuesday, 20th Feb'24 as the 'Record Date' for payment of the 2nd Interim Dividend on Equity Shares for Financial Year 2023-24, if declared by the Board.

Earlier, the company paid its first interim dividend of 152.5% amounting to Rs 15.25 per share for FY24. Meanwhile, in the previous financial year 2022-23, Coal India paid up to 242.50% dividend aggregating to Rs 24.25 per share.

Currently, Coal India has a dividend yield of 5.78%.

Coal India Target Price Of Rs 500:

In its latest research note, ICICI Direct said, "We have a positive view on Coal India given its leading contribution to India's energy needs & robust financials (high return rations, cash-rich B/S). We assign a BUY rating to Coal India with a target price placed at Rs 500 wherein we have valued it at 4.5x EV/EBITDA on FY26E. High dividend yield of ~7% provides healthy margin of safety to our investment thesis.

This implies an over 19% upside from the current market price.

Here are three investment rationale given by ICICI Direct:

1. Coal share in India's energy basket continues to remain significant: Over
~50% of India's energy and ~70% of electricity needs are met by coal, making it the primary energy source for the country. Despite growing emphasis on renewable/non-fossil fuel-based energy, it is envisaged that there will be incremental coal based thermal capacity additions going forward to cater to the growing energy needs domestically.

Thus, demand for coal is expected to reach ~1.3 to 1.5 billion tonnes by 2030; with Coal India a clear beneficiary. Moreover, the company imported ~240 MT of coal as of FY23 of which ~55 MT was coking coal while the rest was non coking coal i.e. ~180 MT, which represents an immediate opportunity for Coal India. Henceforth, the brokerage don't foresee any demand concern for CIL in near future.

2. Healthy volume growth in offering amid ambitious production targets: With government's ambitious plan for 24x7 power supply for all by 2025, CIL has set target of achieving a production volume of 1000 MT by FY26E. With healthy volume growth in the recent past, we have modelled in coal production at CIL to grow at a CAGR of 11% over FY23-26E to 950 MT by FY26E.

Key enablers for double digit volume growth are: (i) better evacuation infrastructure in terms of First Mile Connectivity projects by expanding mechanized capacity to 915 MTPA by FY29 (ii) Engaging with Mine Developer Operators (MDO) wherein it has engaged 15 MDO's for a targeted capacity of ~170 MT and (iii) revival of Underground Mines wherein it has identified 30 discontinued mines with reserve of ~600 MT.

3. Superlative financials: ~30% margins, ~40% Return ratios profile: With healthy demand prospects & lean cost structure, Coal India is well poised to record ~30% EBITDA margins with EBITDA/tonne seen sustaining above the Rs 500/tonne mark over FY23-26E amid blended realisation of Rs 1800/tonne. This coupled with healthy dividend payout ratio (~50%) results in ~40% Return ratios, making strong investment case for Coal India.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.