Following Coal India's Q1FY24 performance, domestic brokerage firms maintained their bullish outlook on the stock, with some even raising target prices higher. Coal India remains Motilal Oswal's top pick in the mining sector. The brokerage retained its 'buy' call on the stock with a target price of ₹300 apiece, valuing the stock at 4.5x FY25E EV/EBITDA. The brokerage noted that Coal India stock is trading at an inexpensive valuation of 3.1x on FY25E EV/EBITDA.
On similar lines, ICICI Securities also kept its 'buy' call on Coal India and revised its target price higher to ₹285 apiece from an earlier price of ₹280. "In our view, CIL’s growth levers are intact as the company pursues volume growth while maintaining the FSA realisation- the two main earnings growth drivers," said the brokerage.
Another domestic broking firm, Centrum Broking, continued with its 'buy' call with a target price of ₹297 apiece, valuing Coal India at 4.5x FY25E EV/EBITDA. The brokerage maintains its confidence in Coal India's sustainable dividend yield of 10–11%.
With its robust profitability, the company is anticipated to generate ample cash after capital expenditure (FY23: Free Cash Flow of ₹229 billion), facilitating higher dividend distribution. The projection indicates an expected dividend per share of ₹30 for FY24 and ₹20 for FY25, translating to a dividend yield range of 8–13%, according to Centrum Broking.
Coal India, the world's largest coal miner, reported its Q1FY24 earnings on August 08, in line with street estimates. The coal miner reported a 10% YoY drop in its consolidated net profit to ₹7,941.40 crore. When compared to the preceding March quarter, the net profit improved by 43.55%.
The YoY drop in net profit was primarily due to higher employee costs, which shot up 20% YoY to ₹12,027.48 crore, owing to the provisioning of a balance left of ₹8,000 crore for a wage hike of 20% announced for non-executive workers. In 2017, Coal India signed a wage agreement with worker unions proposing a 20% hike in salaries every five years.
The wage hike is effective from June 2021, and which is finally implemented in June 2023 and hence from Q2FY24 no provisions will be required, and salaries will paid at revised rate, said brokerage firm Centrum Broking.
The company's revenue was up by 2.53% YoY to ₹35,983 crore, driven by higher volumes and FSA realization. The company's consolidated coal production was at 175.47 MT, up from 159.75 MT in April-June FY23. The coal offtake was also higher at 186.95 MT from 177.49 MT a year ago.
Coal India’s total supply of coal through the fuel supply agreements (FSA) came in at 168 million tonnes (MT), a surge of 9% YoY. The average realisation per tonne from the FSA sales in Q1FY24 grew by 6% YoY to ₹1,536 per tonne.
While e-auction sales recorded a fall of 34% YoY to 16.1 MT as e-auction premiums trended lower in line with a fall in international prices. The e-auction coal price in Q1FY24 declined 14% YoY to ₹3,742 per tonne. Blended coal realization, at ₹1,769 per tonne, was down 3% YoY.
Motilal Oswal believes the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term. China has also increased its dependence on thermal power and has commissioned nearly two thermal power plants each week in CY22 and added more plants in 1HCY23 as well.
With 14 countries adding new coal plants in the last one-year and eight countries announcing new projects, the dependence on coal is therefore likely to increase in the near term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
