Overview:
Coal India (COAL), a key player in the power sector, is strategically positioned to meet the escalating demand for coal, driven by the government’s emphasis on ensuring a reliable 24×7 electricity supply. The company has committed to long-term FSA agreements, targeting a production of 780 million tonnes (mt) in FY24 and 850 mt in FY25, aligning with the government’s vision.
E-Auction Strategy:
To enhance performance, COAL leverages e-auctions, selling approximately 10% of its total volume through auction-determined prices. The company is anticipated to sell around 72 mt, 76 mt, and 88 mt through e-auctions in FY24, FY25, and FY26, respectively. The E-auction premium, influenced by international coal prices, witnessed a rebound, reaching 80-100% in recent months. This resurgence is attributed to increased demand and rising international prices.
Robust Capex Initiatives:
COAL has demonstrated a strong focus on capital expenditure (capex) to enhance its evacuation infrastructure. The capex, which tripled to INR 186 billion in FY23 from previous levels of INR 65-85 billion until FY20, reflects the company’s commitment to infrastructure development. For FY24, COAL has earmarked approximately INR 165 billion in capex, covering areas such as railway corridors, land acquisitions, HEMM procurement, and setting up CHPs. The company has already incurred INR 105 billion in capex during Apr-Nov’23, surpassing the budgeted target.
Financial Outlook:
COAL’s current valuation stands at an EV/Adj. EBITDA of 4.2x FY26E. In line with the growth trajectory, Motilal Oswal reiterates a BUY rating on the stock with a target price (TP) of INR 430, based on 5x FY26E EV/EBITDA. The research report emphasizes COAL’s strategic positioning to capitalize on the forthcoming growth opportunities in the sector.
Conclusion:
Motilal Oswal’s research report recognizes COAL’s proactive stance in navigating the evolving market dynamics. With a commitment to meeting demand, leveraging e-auctions, and robust capex initiatives, COAL is well-positioned for growth. Investors are encouraged to consider the company’s positive outlook and growth potential in the evolving energy landscape.
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