Coal India: A Strong Player with Growth Prospects, Sharekhan Recommends Buy
Sharekhan’s recent research report highlights Coal India Limited (CIL) as a robust performer in the coal production industry. The company has been rated as a “Buy” with a target price of Rs 330. Here are the key insights from Sharekhan’s report:
Key Highlights from Sharekhan’s on Coal India Report:
- Robust Production Performance: CIL has demonstrated robust coal production and is on track to achieve its guidance of 780 million tonnes, indicating an impressive 11% year-on-year growth. This is expected to be followed by even higher production targets of 850 million tonnes to 1 billion tonnes of coal by FY2025E/FY2026E.
- Steady Coal Offtake Growth: Coal offtake for CIL grew by 8% year-on-year to reach 306 million tonnes in the first five months of FY2024. The company is likely to maintain a coal offtake growth rate of over 7% for the entire fiscal year.
- Margin Strength: CIL has multiple levers for maintaining strong margins, including increasing volume from the non-power sector (NPS), which yields better realizations, benefiting from operating leverage due to a strong outlook for coal offtake, and the potential for a hike in FSA (Fuel Supply Agreement) coal realization.
- Earnings Estimate Upgrade: Sharekhan has raised its earnings estimates for FY2024 and FY2025 by 7% each, primarily to account for higher volumes, improved volume mix favoring the NPS, and better absorption of fixed costs due to the benefits of operating leverage. Additionally, any potential FSA coal price hike could lead to an earnings surprise for CIL.
Sharekhan’s Outlook:
With a valuation of 6.4 times its FY2025E EPS, which is close to trough levels, CIL is deemed attractive. The stock also offers a high dividend yield ranging from 8% to 9%. Moreover, the board’s approval for the divestment of a 25% stake in Bharat Coking Coal Limited (BCCL) and a potential listing of BCCL could unlock additional value.
In Summary:
Coal India Limited’s robust production performance, steady coal offtake growth, and potential margin improvements make it an attractive investment opportunity. Sharekhan recommends a “Buy” rating with a revised price target of Rs 330, reflecting the company’s strong fundamentals and growth prospects. The potential divestment and listing of BCCL further enhance the company’s attractiveness as an investment.
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