The shares of one of the leading mining stocks in India specializing in mining and production of Coal and also operates Coal washeries are in focus after brokerage company Motilal Oswal initiated a Buy Target on it with a 26 percent upside potential.
Price action
With a market capitalization of Rs. 2,31,348 crores on Friday, the shares of Coal India Limited opened at Rs. 379.50 down by 1.2 percent compared to its previous closing price of Rs. 385.05 per share.
What Happened
Coal India Limited specializing in the mining and production of Coal and also operates Coal washeries is in focus after Motilal Oswal, a reputed brokerage firm initiated a “Buy” target price of Rs. 480 with a 26 percent upside potential from the opening price of Rs. 379.50 as of January 31, 2025.
The rationale behind the “Buy” Rating
- In-Line Performance: The company’s performance for Q3FY25 was largely in line with expectations, with strong volume growth of 2% year on year and 15 percent quarter on quarter, which contributed positively to its revenue. The higher-than-expected e-auction premiums further supported profitability.
- Good Volumes and Profitability: Coal India’s production and sales showed good growth, particularly the sequential recovery from Q2FY25, which was impacted by monsoons. The e-auction revenue, although slightly down by 2 percent year on year, saw a significant quarter-on-quarter rise of 38 percent, driven by increased premiums.
- Focus on Expansion and Diversification: The company is focused on increasing its coal-washer capacity, which is expected to improve its market share in both coking and non-coking coal. Additionally, Coal India’s management is prioritizing coal mine expansions and might borrow funds to undertake strategic diversification into renewable energy facilities (RE) and coal gasification.
Valuation as per Brokerage: At the CMP of Rs. 376, the stock is trading at an attractive valuation of 3.3x FY27E EV/EBITDA, which is seen as an opportunity for an upside target price of Rs. 480 based on a multiple of 4.5x FY27 EV/EBITDA.
Company overview and Dividend details
Coal India Limited (CIL) is the largest coal producer globally and plays a crucial role in India’s energy sector, primarily supplying coal for power generation. The company is focusing on diversification into renewable energy and coal gasification. They have a dividend yield of 6.79 percent. Recently the company has announced a second interim dividend of Rs. 5.6 per share and the record date is set on January 31, 2025, and the payments are to be made on February 26, 2025.
Financials
The company’s operating revenue fell by 1.03 percent from Rs. 36,153 crore to Rs. 35,779 crore in Q3FY25. Meanwhile, Net profit fell by 6.21 percent from Rs. 9,069.19 crores to Rs. 8,505.57 crore during the same period.
Written by Sridhar J
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